PLUM CREEK TIMBER CO L P, 424B4, 1996-10-23

PLUM CREEK TIMBER CO L P
424B4, 1996-10-23
LUMBER & WOOD PRODUCTS (NO FURNITURE)

Previous: NUVEEN TAX EXEMPT UNIT TRUST SERIES 511, 485BPOS, 1996-10-23

Next: PLUM CREEK TIMBER CO L P, 424B4, 1996-10-23

<PAGE> 1
Filed Pursuant to Rule 424(b)(4)

Registration Statements Nos. 333-11727
and 333-14623

PROSPECTUS

- ---------------------

<TABLE>
<S> <C>
LOGO PLUM CREEK TIMBER COMPANY, L.P.
</TABLE>

5,100,000 DEPOSITARY UNITS

REPRESENTING LIMITED PARTNER INTERESTS
----------------------

The 5,100,000 Depositary Units ("Units") offered hereby represent limited
partner interests in Plum Creek Timber Company, L.P. (the "Partnership"). The
Units are listed on the New York Stock Exchange under the symbol "PCL." On
October 22, 1996, the last reported sale price for the Units was $26 3/4 per
Unit.

The Partnership distributes to its partners all of its Available Cash (as
defined herein) on a quarterly basis. With respect to each quarter in 1995 and
for the quarter ended March 31, 1996, the Partnership distributed $0.49 per
Unit. For the quarter ended June 30, 1996, the Partnership distributed $0.51 per
Unit. With respect to the quarter ended September 30, 1996, the General Partner
has declared a distribution of $0.51 per Unit payable on November 29, 1996 to
holders of record on November 15, 1996. Such distribution will be payable on the
Units purchased in this offering. There can be no assurance, however, that
distributions at these levels can be maintained in the future. The General
Partner's interest in the Partnership includes the right to receive incentive
distributions to the extent that quarterly distributions exceed certain Target
Amounts as described herein, in addition to distributions in respect of its 2%
general partner interest.

PURCHASERS OF UNITS SHOULD CONSIDER EACH OF THE FACTORS DESCRIBED UNDER
"RISK FACTORS," STARTING ON PAGE 13, IN EVALUATING AN INVESTMENT IN THE UNITS.
SUCH FACTORS INCLUDE THE FOLLOWING:

- - THE PARTNERSHIP'S OPERATIONS ARE SUBJECT TO FLUCTUATIONS IN PRICES AND DEMAND
FOR FOREST PRODUCTS AND SUPPLY OF TIMBER.

- - THE PARTNERSHIP'S BUSINESS, INCLUDING THE ABILITY TO HARVEST ITS TIMBER, MAY
BE AFFECTED BY VARIOUS FACTORS, INCLUDING ENVIRONMENTAL AND ENDANGERED
SPECIES CONCERNS, FEDERAL AND STATE REGULATIONS, LIMITATIONS ON ACCESS ACROSS
PUBLIC LANDS AND DAMAGE BY FIRE, INSECT INFESTATION AND OTHER NATURAL CAUSES.

- - THE AMOUNT OF CASH DISTRIBUTIONS DEPENDS ON PARTNERSHIP OPERATING PERFORMANCE
AND IS AFFECTED BY THE LEVELS OF RESERVES, OPERATING AND CAPITAL EXPENDITURES
AND OTHER MATTERS WITHIN THE DISCRETION OF THE GENERAL PARTNER.

- - UNITHOLDERS HAVE LIMITED VOTING RIGHTS, AND THE GENERAL PARTNER MANAGES AND
CONTROLS THE PARTNERSHIP. CONFLICTS OF INTEREST COULD ARISE BETWEEN THE
GENERAL PARTNER AND ITS AFFILIATES, ON THE ONE HAND, AND THE PARTNERSHIP OR
ANY UNITHOLDER THEREOF, ON THE OTHER. UNITHOLDERS ARE DEEMED TO HAVE
CONSENTED TO CERTAIN ACTIONS AND CONFLICTS OF INTEREST THAT MIGHT OTHERWISE
BE DEEMED A BREACH OF THE GENERAL PARTNER'S DUTIES OF LOYALTY OR CARE OR
OTHER DUTIES UNDER APPLICABLE STATE LAW.
----------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) PARTNERSHIP(2)
- -----------------------------------------------------------------------------------------------------------
Per Unit................................... $26.75 $1.335 $25.415
- -----------------------------------------------------------------------------------------------------------
Total(3)................................... $136,425,000 $6,808,500 $129,616,500
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Partnership and the General Partner have agreed to indemnify the several
Underwriters against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Partnership estimated at $850,000.

(3) The Partnership has granted to the several Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to an additional 765,000 Units to cover over-allotments, if any. If all such
additional Units are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Partnership will be $156,888,750, $7,829,775 and
$149,058,975, respectively. See "Underwriting."

----------------------

The Units are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Units
will be made in New York, New York, on or about October 28, 1996.

----------------------

MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC.

PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
D.A. DAVIDSON & CO.
------------------------

The date of this Prospectus is October 22, 1996.

<PAGE> 2

[Set forth in this space is a map depicting the location of the Partnership's
properties]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 3

TABLE OF CONTENTS

PAGE
----
<S> <C>
AVAILABLE INFORMATION...................... 4
INCORPORATION OF CERTAIN DOCUMENTS......... 4
PROSPECTUS SUMMARY......................... 5
The Partnership.......................... 5
Summary Historical and Pro Forma
Financial and Operating Data........... 9
The Offering............................. 11
Recent Developments...................... 11
Cash Distributions....................... 11
Summary of Risk Factors.................. 12
Summary of Tax Considerations............ 12
RISK FACTORS............................... 13
Risks Inherent in the Partnership's
Business............................... 13
Risks Inherent in an Investment in the
Partnership............................ 15
Tax Risks................................ 16
Forward-Looking Statements............... 18
THE TRANSACTIONS........................... 19
The Riverwood Acquisition................ 19
The Financing............................ 19
USE OF PROCEEDS............................ 20
CAPITALIZATION............................. 21
PRICE RANGE OF UNITS....................... 22
CASH DISTRIBUTION POLICY................... 23
General.................................. 23
Quarterly Distributions of Available
Cash................................... 24
Distributions of Cash from Capital
Transactions........................... 26
Distributions of Cash Upon Liquidation... 26
UNAUDITED COMBINED PRO FORMA FINANCIAL
STATEMENTS............................... 28
SELECTED HISTORICAL FINANCIAL AND OPERATING
DATA..................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................... 37
General.................................. 37
Results of Operations.................... 40
Export Sales............................. 43
Liquidity and Capital Resources.......... 43
Partnership Indebtedness................. 44
New Bank Facilities...................... 46
Effect of Inflation...................... 46
Other Matters............................ 46
BUSINESS AND PROPERTIES.................... 48
Overview................................. 48
Business Strategy........................ 48
The Timberlands.......................... 50
Resource Management...................... 53
Conversion Facilities.................... 54
Sources of Raw Material for Conversion
Facilities............................. 56
Competition.............................. 57
Federal and State Regulations............ 57
Litigation............................... 61
Employees................................ 61
MANAGEMENT................................. 62
Partnership Management................... 62
Executive Officers and Directors......... 62
CONFLICTS OF INTEREST...................... 64
DESCRIPTION OF THE UNITS................... 67
General.................................. 67
Transfer of Units........................ 67
Withdrawal of Units...................... 68
Resignation and Removal of Depositary.... 68
Amendment................................ 68
Termination.............................. 69
Duties and Status of Depositary.......... 69
SUMMARY DESCRIPTION OF THE PARTNERSHIP
AGREEMENT................................ 70
Organization and Duration................ 70
Purpose.................................. 70
Power of Attorney........................ 70
Reimbursement............................ 70
Restrictions on Authority of the General
Partner................................ 70
Withdrawal or Removal of the General
Partner................................ 71
Transfer of General Partner Interests.... 72
Status as Limited Partner or Assignee.... 73
Non-citizen Assignees; Redemption........ 73
Issuance of Additional Units and
Securities............................. 73
Limited Call Right....................... 74
Amendment of Partnership Agreement....... 74
Meetings; Voting......................... 75
Indemnification.......................... 76
Limited Liability........................ 76
Books and Reports........................ 77
Right to Inspect Partnership Books and
Records................................ 77
Merger................................... 78
Termination, Dissolution and
Liquidation............................ 78
TAX CONSIDERATIONS......................... 79
Legal Opinions and Advice................ 79
Partnership Status....................... 79
Limited Partner Status................... 81
Tax Consequences of Unit Ownership....... 81
Tax Treatment of Operations.............. 84
Disposition of Units..................... 88
Uniformity of Units...................... 91
Tax-Exempt Organizations and Certain
Other Investors........................ 91
Administrative Matters................... 92
Changes In Federal Income Tax Laws....... 94
Other Tax Considerations................. 95
INVESTMENT IN THE PARTNERSHIP BY EMPLOYEE
BENEFIT PLANS............................ 96
UNDERWRITING............................... 97
LEGAL MATTERS.............................. 98
EXPERTS.................................... 98
INDEX TO FINANCIAL STATEMENTS.............. F-1
GLOSSARY................................... A-1
</TABLE>

3
<PAGE> 4

AVAILABLE INFORMATION

The Partnership has filed with the Securities and Exchange Commission (the
"SEC") in Washington, D.C., a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered by this Prospectus.
Certain of the information contained in the Registration Statement is omitted
from this Prospectus, and reference is hereby made to the Registration Statement
and exhibits and schedules relating thereto for further information with respect
to the Partnership and the securities offered by this Prospectus. The
Partnership is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the SEC. Such reports and
other information are available for inspection at, and copies of such materials
may be obtained upon payment of the fees prescribed therefor by the rules and
regulations of the SEC from, the SEC at its principal offices located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Regional Offices of the SEC located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center,
New York, New York 10048 or may be obtained on the Internet at
http://www.sec.gov. In addition, the Units of the Partnership are traded on the
New York Stock Exchange, and such reports and other information may be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.

INCORPORATION OF CERTAIN DOCUMENTS

The Partnership's Annual Report on Form 10-K (Commission File No. 1-10239)
for the fiscal year ended December 31, 1995, as amended by Amendment No. 1 on
Form 10-K/A dated March 21, 1996, the Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996 and the description of the Units
contained in the Partnership's Registration Statement on Form 8-A dated April
26, 1989, as amended on May 24, 1989 and May 31, 1989, are incorporated herein
by reference.

All documents filed by the Partnership pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, herein modifies or replaces such statement. Any such
statement so modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part of this Prospectus.

The Partnership undertakes to provide without charge to each person,
including any beneficial owner of Units, to whom a copy of this Prospectus has
been delivered, upon written or oral request of any such person, a copy of any
or all of the documents incorporated by reference herein, other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
in such documents. Written or oral requests for such copies should be directed
to: Plum Creek Timber Company, L.P., 999 Third Avenue, Suite 2300, Seattle,
Washington 98104-4096, Attention: Michelle Monfor, Director, Investor Relations,
telephone (800) 858-5347.

4
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial and operating data appearing elsewhere in this
Prospectus or incorporated herein by reference. As used in this Prospectus,
unless the context otherwise requires, the "Partnership" and "Plum Creek" refer
to Plum Creek Timber Company, L.P., together with its subsidiaries. Other than
the historical financial data, unless otherwise indicated, all information in
this Prospectus (i) assumes that the over-allotment option granted to the
Underwriters by the Partnership is not exercised, (ii) reflects the consummation
of the Riverwood Acquisition and the Newport Asset Sale (as defined herein) and
(iii) assumes the Financing (as defined herein). The Riverwood Acquisition, the
Newport Asset Sale and the Financing are hereinafter collectively referred to as
the "Transactions." See "The Transactions." For ease of reference, a glossary of
certain terms used in this Prospectus is included as Appendix A hereto.

THE PARTNERSHIP

GENERAL

Plum Creek Timber Company, L.P. owns and manages timberland properties in
the northwest United States and the southeast United States. Plum Creek has the
second largest private holding of timberland in the Pacific Northwest and is one
of the largest owners of private timberland in the United States. Plum Creek
owns approximately 2.5 million acres of fee timberland in three regions: the
Rocky Mountain Region, with approximately 1.6 million acres containing
approximately 7.0 billion board feet ("BBF") of standing timber in Montana and
Idaho; the Cascades Region, with approximately 330,000 acres containing
approximately 2.3 BBF of standing timber in Washington; and the Southern Region,
with approximately 529,000 acres containing approximately 5.4 million Cunits of
standing timber in Louisiana and Arkansas purchased in connection with the
recently completed Riverwood Acquisition. Plum Creek also manufactures and
markets specialty lumber, plywood and medium density fiberboard ("MDF") to
maximize the value of its timber resource base. Plum Creek owns and operates 12
manufacturing facilities, including four lumber mills, two plywood plants, an
MDF facility, a lumber remanufacturing facility and a wood chip plant in the
Pacific Northwest, and two lumber mills and a plywood facility in the southeast
United States purchased in connection with the Riverwood Acquisition.

Plum Creek also believes the demand for wood fiber in the southeast United
States has increased, and will likely continue to increase, at a faster rate
than the available supply due to the recent and expected future capacity
expansion by pulp and paper and wood products manufacturers. As a result, the
Partnership believes timber harvest levels will continue to exceed growth and
lead to a decline in timber inventory in the region. To capitalize on these
favorable regional industry dynamics, on October 18, 1996 Plum Creek purchased
from Riverwood International Corporation ("Riverwood International") the
approximately 529,000 acres (plus approximately 9,000 leased acres) of Southern
Region timberlands (the "Southern Timberlands") and the related lumber mills and
plywood facility (the "Southern Facilities"), for a cash purchase price of
approximately $540 million plus working capital as of the closing date (the
"Riverwood Acquisition"). Timberlands in the southeast United States, including
the Southern Timberlands, are generally considered to be among the most
productive in the country. Merchantable timber growth on the Southern
Timberlands approximates 12% per year. Due to the substantial wood and paper
products manufacturing capacity in the region, the Partnership believes there is
a highly competitive market for logs harvested from the Southern Timberlands. As
part of the Riverwood Acquisition, the Partnership entered into a long-term
agreement to

5
<PAGE> 6

supply wood fiber to Riverwood International's West Monroe, Louisiana paperboard
plant (the "Riverwood Paperboard Plant") at prevailing market prices, which the
Partnership expects will provide Plum Creek with a secure market for its local
mill residuals (primarily wood chips) and a substantial portion of the pine and
hardwood pulpwood harvested from the Southern Timberlands. Riverwood
International is a provider of, among other things, paperboard packaging to
multinational beverage and food companies.

As used herein, the "Northwest Timberlands" refers to the Partnership's
Rocky Mountain Region and Cascades Region timberlands described above; the
"Timberlands" refers collectively to the Northwest Timberlands and the Southern
Timberlands; the "Northwest Facilities" refers collectively to the Partnership's
nine mills, plants and other manufacturing facilities in the Pacific Northwest;
and the "Conversion Facilities" refers collectively to the Northwest Facilities
and the Southern Facilities.

BUSINESS STRATEGY

Plum Creek's business strategy focuses on managing and expanding the
Partnership's timber resource base to maximize both cash flow and the future
value of its timberlands. This strategy is composed of the following key
elements:

- Manage its timberlands to maximize their value

- Maintain environmental leadership

- Selectively pursue acquisitions of high quality timber assets

- Realize the value of certain properties through sale or exchange

- Apply manufacturing expertise in value-added markets

MANAGE ITS TIMBERLANDS TO MAXIMIZE THEIR VALUE. Plum Creek views its
timber resource base as an asset with substantial inherent value and
consequently manages its timberlands in a manner that is intended to optimize
the balance among current cash flows, prudent environmental management and the
regeneration of its timberlands over time. Plum Creek's harvest management
approach employs state-of-the-art forest management practices, including the use
of a computerized timber inventory system and pre-commercial and commercial
thinning in order to enhance the long-term productivity of its timberlands. In
addition, Plum Creek seeks to maximize future growth and yield from its
timberlands through such techniques as the conversion of older, slower growing
forests to younger, more productive forests (using harvesting techniques that
comply with or exceed current environmental requirements) and the development of
genetically improved seedlings to grow trees with desirable traits such as
superior size and disease resistance.

MAINTAIN ENVIRONMENTAL LEADERSHIP. Plum Creek believes that
environmentally sound forest resource and mill management contributes to the
growth in the value and profitability of the Partnership by providing greater
flexibility, control and predictability in the management of its assets on a
long-term basis. Plum Creek intends to continue to practice "Environmental
Forestry," which attempts to better protect and maintain ecosystems while
providing for a reasonable harvest, and to manage all of its properties and
facilities in an environmentally responsible manner. The forestry and mill
practices employed by the Partnership follow a set of environmental principles
aimed at the sound management of all natural resources--including soils,
watersheds, fisheries and wildlife habitat. Consistent with these principles,
Plum Creek recently implemented one of the most comprehensive habitat
conservation plans created to date in the forest products industry, covering
170,000 acres of the Partnership's timberlands in the Cascades Region.

SELECTIVELY PURSUE ACQUISITIONS OF HIGH QUALITY TIMBER ASSETS. Plum Creek
intends to pursue a disciplined acquisition strategy as one means of increasing
both the value of the Partnership's assets and per Unit distributable cash. To
this end, Plum Creek seeks to identify and acquire high quality timber assets
that will be additive to per Unit cash flow on a stand-alone basis and that will
allow the Partnership to enhance its resource base, diversify its holdings,
provide value-added products to its customers and capitalize on its experience
in resource stewardship. In 1993, Plum Creek acquired 865,000 acres of
timberland in western Montana (the "Montana Timberland Acquisition"). This
acquisition enhanced Plum Creek's cash flows and operating flexibility and
efficiency in sourcing the timber species needed for the Northwest Facilities.
In

6
<PAGE> 7

addition, by completing the Riverwood Acquisition, Plum Creek has entered the
productive southeast region with a sufficiently large presence to support
additional acquisitions in that region that it might not otherwise pursue.

REALIZE THE VALUE OF CERTAIN PROPERTIES THROUGH SALE OR EXCHANGE. Plum
Creek seeks to realize the value of property that may have a higher and better
use than for commercial timberland management or is otherwise a candidate for
sale or exchange. Plum Creek has identified approximately 150,000 acres of its
properties located in recreational areas or near expanding population centers
that may optimally be used for conservation, residential or recreational
purposes. Plum Creek's strategy is to realize the value of these properties,
either through sales or exchanges, over the next five to 15 years. Plum Creek
seeks to exchange lands which have high environmental and other public values
for lands that are more suitable for commercial timber management. In addition,
from time to time, Plum Creek may sell certain of its timberlands and facilities
if attractive opportunities arise. For example, as part of the Transactions,
Plum Creek sold 107,000 acres of its timberlands in eastern Washington and
northern Idaho (the "Newport Timberlands") and its related sawmill in Colville,
Washington (the "Arden Sawmill").

APPLY MANUFACTURING EXPERTISE IN VALUE-ADDED MARKETS. Plum Creek seeks to
enhance the overall value of its existing resources by converting timber to
lumber, plywood or other wood products. Since the Partnership's inception in
1989, Plum Creek has invested approximately $115 million in its conversion
facilities to enhance its ability to manufacture specialized value-added
products primarily for the repair and remodeling, industrial and various other
specialty niche markets. Plum Creek believes that its focus on such specialty
markets has historically helped to mitigate the effects of housing sector
volatility and has tended to generate higher profit margins than would have been
obtained by selling primarily into commodity wood products markets. These
specialized products are designed to fit customers' needs and foster strategic
relationships with key customers through enhanced service. For example, Plum
Creek has developed lumber program sales, which involve providing value-added
products with customized services, such as consignment and warehousing programs,
bar-coding and specialized packaging. These programs have been particularly
effective in servicing the rapidly expanding warehouse home center and
do-it-yourself store formats.

PARTNERSHIP STRUCTURE AND MANAGEMENT

The Partnership was formed in 1989 to acquire, own and operate the timber
business and wood products manufacturing operations of Plum Creek Timber
Company, Inc., a wholly owned subsidiary of Burlington Resources Inc.
("Burlington"). The Partnership is no longer affiliated with Burlington. Plum
Creek Management Company, L.P., a Delaware limited partnership, is the general
partner of the Partnership (the "General Partner"). The indirect general partner
of the General Partner is PC Advisory Corp. I, a Delaware corporation ("Corp.
I"). The officers of the General Partner and the directors of Corp. I are the
persons who currently manage the Partnership. See "Management."

The operations of the Partnership are carried out through the Partnership
and its 98% and 96%-owned subsidiaries, Plum Creek Manufacturing, L.P., a
Delaware limited partnership ("Manufacturing"), and Plum Creek Marketing, Inc.,
a Delaware corporation ("Marketing"), respectively. The remaining 2% and 4%
interests in Manufacturing and Marketing, respectively, are owned by the General
Partner. References herein to the General Partner's 2% interest, or to
distributions to the General Partner of 2% of Available Cash, are references to
the amount of the General Partner's interest in the Partnership, which will
remain at 2% following the offering, and exclude its direct interests in
Manufacturing and Marketing. The General Partner's interest also includes the
right to receive incentive distributions to the extent that quarterly
distributions on the Units exceed certain Target Amounts. See "Cash Distribution
Policy."

The activities of the General Partner are limited by the Partnership
Agreement of the Partnership (the "Partnership Agreement") to the management of
the activities and operations of the Partnership. The General Partner receives
no management fee in connection with its management of the Partnership and
receives no compensation for its services as general partner of the Partnership
other than reimbursement for all direct and indirect expenses incurred in
connection with the Partnership's operations and all other necessary or
appropriate expenses allocable to the Partnership or otherwise reasonably
incurred by the General Partner in

7
<PAGE> 8

connection with the operation of the Partnership's business. See "Management"
and "Cash Distribution Policy."

The principal executive offices of the Partnership and the General Partner
are located at 999 Third Avenue, Suite 2300, Seattle, Washington 98104-4096. The
telephone number at such offices is (206) 467-3600.

The following chart depicts the organization and ownership of the
Partnership, Manufacturing and Marketing both before and immediately after
giving effect to the sale of the Units offered hereby.

[CHART]

8
<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The following table sets forth, for the periods and at the dates indicated,
summary combined historical financial and operating data for the Partnership,
and summary combined pro forma financial data for the Partnership after giving
effect to the Transactions. The summary combined historical financial data for
each of the five years in the period ended December 31, 1995 are derived from
the combined historical audited financial statements of the Partnership and
should be read in conjunction with the financial statements included elsewhere
in this Prospectus or incorporated herein by reference. The related combined
historical financial data for the six-month periods ended June 30, 1995 and 1996
are derived from the historical unaudited combined financial statements of the
Partnership included elsewhere in this Prospectus or incorporated herein by
reference which, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair statement of
the results for the respective unaudited interim periods. Interim results may
not be indicative of results which may be expected for any other interim period
or for the year as a whole. The summary combined pro forma financial information
is derived from and should be read in conjunction with the pro forma financial
information contained elsewhere in this Prospectus. See "Unaudited Combined Pro
Forma Financial Statements." The pro forma results of operations are not
necessarily indicative of results that would have occurred or the future results
of operations of the Partnership. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------- ---------------------------------
PRO FORMA PRO FORMA
1991(1) 1992(1)(2) 1993(3) 1994 1995 1995 1995(1) 1996 1996
-------- -------- -------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
INCOME STATEMENT
DATA:
Revenues............ $389,785 $439,904 $501,006 $578,657 $585,074 $688,766 $283,466 $266,438 $316,008
Operating income.... 55,660 97,782 126,557 164,134 158,976 186,102 77,613 60,148 76,395
Interest expense.... (36,156) (35,749) (36,737) (47,410) (46,836) (65,183) (23,754) (23,061) (31,469)
Interest income..... 2,534 2,870 2,203 889 1,073 1,073 621 331 331
Other income
(expense) --
net................ (2,885) (602) (474) (4,477) (1,910) (1,910) (984) (83) (83)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes.............. 19,153 64,301 91,549 113,136 111,303 120,082 53,496 37,335 45,174
Provision for income
taxes.............. 424 80 105 924 572 572 570 443 443
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income.......... 18,729 64,221 91,444 112,212 110,731 119,510 52,926 36,892 44,731
General Partner
interest........... 2,527 4,760 8,837 16,325 22,487 25,209 10,531 11,537 13,051
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income allocable
to
Unitholders........ $ 16,202 $ 59,461 $ 82,607 $ 95,887 $ 88,244 $ 94,301 $ 42,395 $ 25,355 $ 31,680
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income per
Unit(4)............ $ 0.37 $ 1.34 $ 1.92 $ 2.36 $ 2.17 $ 2.06 $ 1.04 $ 0.62 $ 0.69
Cash distributions
declared per
Unit(4)............ 1.07 1.17 1.38 1.67 1.96 0.98 1.00
Percentage of
declared
distributions
Unitholders........ 93.3% 90.0% 84.5% 79.8% 76.7% 76.7% 76.4%
General Partner.... 6.7% 10.0% 15.5% 20.2% 23.3% 23.3% 23.6%
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW AND OTHER
DATA:
EBITDA(5)........... $ 98,301 $139,058 $167,092 $214,689 $212,236 $249,952 $102,942 $ 86,762 $108,395
Depletion,
depreciation and
amortization....... 42,992 39,008 38,806 54,143 54,097 64,687 25,692 26,366 31,752
Capital
expenditures....... 11,398 25,615 29,264(6) 25,837 30,683 32,630 14,004 10,273 11,529
Repayment of
long-term debt,
net................ -- 6,500 8,600(6) 25,501 13,000 13,000 13,000 14,100 14,100
</TABLE>

9
<PAGE> 10

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------
-------------------------------------------------------- PRO FORMA
1991(1) 1992(1) 1993(1)(3) 1994 1995 1995(1) 1996 1996
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT PERIOD
END):
Working capital................. $ 73,114 $ 99,724 $ 51,016 $ 90,511 $111,541 $ 94,433 $ 95,415 $ 98,891
Total assets.................... 581,483 587,040 818,754 826,220 826,086 813,804 789,313 1,304,091
Total debt...................... 325,000 318,500 569,900 544,400 531,400 531,400 517,300 795,565
Total partners' capital......... 211,652 225,293 192,555 222,977 233,868 227,917 218,906 452,447
OPERATING DATA:
Fee timber harvested (MMBF)..... 563 469 458 559 562 232 247
Non-fee timber harvested
(MMBF)......................... 76 117 77 71 116 47 62
Lumber production (MMBF)........ 409 395 352 388 433 216 223
Plywood production (MMSF)
(3/8" basis)................... 279 294 289 290 294 150 149
MDF production (MMSF)
(3/4" basis)................... 103 109 106 123 102 56 54
</TABLE>

- ---------------
(1) Certain reclassifications have been made for comparability purposes and have
no impact on net income.

(2) Included in 1992 results of operations was the sale of 164,000 acres of
timberland, together with a related sawmill, resulting in a net gain of
$15.6 million.

(3) During 1993, the Partnership elected to change its method for valuing
inventories from average cost to the last-in, first-out ("LIFO") method.
This change in accounting lowered 1993 earnings by $8.0 million or $0.18 per
Unit. The cumulative effect of the accounting change and pro forma effects
on prior years' earnings have not been included because such effects are not
reasonably determinable. In addition, on August 30, 1993, the Partnership
redeemed 100% of the Deferred Participation Interests ("DPIs") for $63.0
million. Results subsequent to 1993 include the impact of the Montana
Timberland Acquisition, which was effected in November 1993.

(4) Prior period per Unit amounts have been restated for the December 6, 1993
three-for-one Unit split. The weighted average number of Units outstanding
for the year ended December 31, 1995 and the six months ended June 30, 1996
was 40,608,300. The pro forma weighted average number of Units outstanding
for such periods was 45,708,300.

(5) EBITDA is defined as net income before interest expense, income taxes,
depreciation, depletion and amortization and extraordinary items. EBITDA is
provided because management believes EBITDA provides useful information for
evaluating the Partnership's ability to make cash distributions. EBITDA
should not be construed as an alternative to operating income (as an
indicator of the Partnership's operating performance) or as an alternative
to cash flows from operating activities (as a measure of liquidity).

(6) Excludes $255.3 million of capital expenditures and $260.0 million of
long-term debt borrowings related to the Montana Timberland Acquisition.

10
<PAGE> 11

THE OFFERING

Securities offered......... 5,100,000 Units (5,865,000 Units, if the
Underwriters' over-allotment option is exercised in
full).

Units to be outstanding
after this offering........ 45,708,300 Units, representing an aggregate 98%
limited partner interest in the Partnership
(46,473,300 Units, representing an aggregate 98%
limited partner interest in the Partnership, if the
Underwriters' over-allotment option is exercised in
full).

Use of proceeds............ The net proceeds from the sale of the Units offered
hereby will be used as part of the financing in
connection with the Riverwood Acquisition. See "Use
of Proceeds" and "The Transactions."

NYSE symbol................ "PCL"

RECENT DEVELOPMENTS

On October 10, 1996 the Partnership reported third quarter earnings of
$36.8 million, or $0.75 per Unit, as compared to $30.2 million, or $0.60 per
Unit, for the same period in 1995. Revenues for the third quarter of 1996 were
$173.0 million compared to $152.3 million for the third quarter of 1995.
Earnings for the nine-month period ending September 30, 1996 totaled $73.7
million, or $1.37 per Unit, on revenues of $439.5 million compared to $83.1
million, or $1.64 per Unit, on revenues of $435.8 million for the same period in
1995. The Partnership also announced that its third quarter 1996 cash
distribution to Unitholders will be $0.51 per Unit and will be paid on November
29, 1996 to Unitholders of record as of November 15, 1996.

Lumber prices realized by the Partnership during the third quarter of 1996
increased 14% over the third quarter of 1995 and 8% from the second quarter of
1996 primarily due to strength in the United States housing and repair and
remodel markets. Third quarter 1996 prices for export logs, domestic logs,
plywood and MDF all improved over second quarter 1996 prices due to the general
strengthening in the demand for wood products. However, third quarter 1996
prices for plywood and MDF were lower than third quarter 1995 prices due to
capacity expansion of OSB and MDF producers. Prices for export logs in the third
quarter of 1996 were below prices for the same period in the prior year due to a
higher percentage of lower valued whitewoods in the Partnership's export
shipments. Prices for wood chips remain below year earlier levels due to high
inventory levels at pulp and paper plants.

CASH DISTRIBUTIONS

The Partnership distributes 100% of its Available Cash within 60 days after
the end of each calendar quarter to Unitholders of record on the applicable
record date and to the General Partner. Available Cash for any quarter consists
generally of the net income of the Partnership, plus certain non-cash items,
plus reductions to reserves less certain capital expenditures, principal
payments on indebtedness and additions to reserves. The definition of "Available
Cash" is set forth in "Cash Distribution Policy--Quarterly Distributions of
Available Cash." The General Partner has broad discretion in establishing
reserves, thereby affecting the amount of Available Cash. In addition, the
Partnership's indebtedness requires that certain reserves for the payment of
principal and interest be maintained.

Quarterly distributions by the Partnership of its Available Cash are made
98% to the Unitholders and 2% to the General Partner, and, in addition to such
2%, when the distribution of Available Cash exceeds certain specified quarterly
target levels ("Target Amounts"), the General Partner receives a percentage of
such excess increasing to up to 35% of the distribution above the highest Target
Amount ($0.28 1/3 per Unit). See "Cash Distribution Policy--Quarterly
Distributions of Available Cash." The Partnership distributed $0.49 per Unit
with respect to each calendar quarter in 1995 and the quarter ended March 31,
1996. With respect to the quarter ended June 30, 1996, the Partnership
distributed $0.51 per Unit. There can be no assurance that distributions at
these levels can be maintained in the future. Because the distributions with
respect to each such quarter were in excess of the Target Amounts, the General
Partner received incentive distributions. As a

11
<PAGE> 12

result, with respect to each quarter in 1995 and the first quarter of 1996, the
Unitholders received 76.7%, and the General Partner received 23.3%, of the
aggregate amount distributed. With respect to the second quarter of 1996, the
Unitholders received 76.1%, and the General Partner received 23.9%, of the
aggregate amount distributed. The Target Amounts are subject to adjustment under
certain circumstances such as unfavorable tax legislation or upon distributions
of Cash from Capital Transactions, as defined in the Glossary. With respect to
the quarter ended September 30, 1996, the General Partner has declared a
distribution of $0.51 per Unit payable on November 29, 1996 to holders of record
on November 15, 1996. Such distribution will be payable on the Units purchased
in this offering.

SUMMARY OF RISK FACTORS

Prospective purchasers of the Units offered hereby should consider the
factors referred to under the section "Risk Factors." Such factors will bear on
the value of the Units, the amount of cash distributions to Unitholders and
other matters affecting an investment in the Units. The factors described
therein include, among others: (i) risks associated with the forestry and wood
products industry, (ii) matters affecting cash distributions, (iii) Unitholders'
limited voting rights and (iv) conflicts of interest.

SUMMARY OF TAX CONSIDERATIONS

The tax consequences of an investment in Units to a particular investor
will depend in part on the investor's own tax circumstances. Each prospective
investor should consult his tax advisor about the federal, state and local tax
consequences of an investment in Units.

For a discussion of the principal federal income tax consequences
associated with the operations of the Partnership and the purchase, ownership
and disposition of Units, see "Tax Considerations."

RATIO OF TAXABLE INCOME TO DISTRIBUTIONS

The ratio of taxable income to cash distributions will have an impact on
the investment return to a Unitholder. The General Partner estimates that a
purchaser of Units in this offering who holds such Units through the record date
for the last quarter of 1999 will be allocated, on a cumulative basis, an amount
of federal taxable income for such period that will be less than 10% of the cash
distributed with respect to that period. A majority of such taxable income is
expected to be treated as capital gains as a result of an election under Section
631(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The
General Partner further estimates that after 1999, the taxable income allocable
to the Unitholders will constitute a significantly higher percentage of cash
distributed to Unitholders. These estimates are based upon the assumption that
Available Cash will approximate an amount required to maintain quarterly
distributions with respect to the Units at their current levels, along with
other assumptions regarding the levels of capital expenditures and required
reserves. These estimates and assumptions are subject to, among other things,
numerous business, economic, regulatory, competitive and political uncertainties
beyond the control of the General Partner, especially the assumed prices for
logs and other forest products. Further, the estimates are based on current tax
law and certain tax reporting positions that the General Partner has adopted and
with which the Internal Revenue Service could disagree. Accordingly, no
assurance can be given that the estimates will prove to be correct. The actual
percentages could be higher or lower than as described above and such
differences could be material. The General Partner has not requested, and does
not intend to request, any tax ruling from the Internal Revenue Service
regarding these tax positions. See "Tax Considerations--Tax Consequences of Unit
Ownership--Ratio of Taxable Income to Distributions."

OWNERSHIP OF UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS

An investment in Units by tax-exempt organizations (including individual
retirement accounts and other retirement plans), regulated investment companies
and foreign persons raises issues unique to such persons. See "Risk Factors--Tax
Risks--Ownership of Units by Tax-Exempt Organizations and Certain Other
Investors" and "Tax Considerations--Tax-Exempt Organizations and Certain Other
Investors."

12
<PAGE> 13

RISK FACTORS

A prospective investor should carefully consider the following risk
factors, as well as the other information set forth or incorporated by reference
in this Prospectus, before purchasing the Units offered hereby.

RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS

Cyclicality of Forest Products Industry Will Affect the Partnership's
Results of Operations. The Partnership's results of operations are, and will
continue to be, affected by the cyclical nature of the forest products industry.
Prices and demand for logs and manufactured wood products have been, and in the
future can be expected to be, subject to cyclical fluctuations. The demand for
logs and wood products is primarily affected by the level of new residential
construction activity and, to a lesser extent, repair and remodeling activity
and other industrial uses, which are subject to fluctuations due to changes in
economic conditions, interest rates, population growth, weather conditions and
other factors. Decreases in the level of residential construction activity
generally reduce demand for logs and wood products, resulting in lower revenues,
profits and cash flows. Riverwood International's lumber and panel products have
been sold primarily into markets that typically rely on home construction.
Consequently, the Partnership expects that its exposure to the more cyclical
home construction market will increase with the completion of the Riverwood
Acquisition.

The Partnership Experiences Significant Competition. The forest products
industry is highly competitive in terms of price and quality. Many of the
Partnership's competitors have substantially greater financial and operating
resources than the Partnership. Wood products are subject to increasing
competition from a variety of substitute products, including non-wood and
engineered wood products. Plywood markets are subject to competition from
oriented strand board ("OSB"), and lumber and log markets are subject to
competition from other worldwide suppliers. To the extent there is a significant
increase in competitive pressures, the Partnership's results of operations could
be materially and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business and Properties."

The Partnership's Ability to Harvest Timber May be Subject to
Limitations. Revenues, net income and cash flow from the Partnership's
operations are dependent to a significant extent on its continued ability to
harvest timber at adequate levels. The ability of the Partnership to accelerate
the harvest of significant amounts of timber in order to fund distributions to
Unitholders may be limited by the terms of the Partnership's long-term debt
agreements and lines of credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Partnership Indebtedness." There
can be no assurance that the Partnership will achieve harvest levels in the
future necessary to maintain or increase revenues, net income and cash flows.

Weather conditions, timber growth cycles, access limitations and regulatory
requirements associated with the protection of wildlife and water resources may
restrict harvesting of the Timberlands, as may other factors, including damage
by fire, insect infestation, disease, prolonged drought and natural disasters.
As is typical in the forest products industry, the Partnership does not maintain
insurance coverage with respect to damage to its timberlands. Even if such
insurance were available, the cost would be prohibitive. The Partnership does,
however, maintain insurance for loss of logs due to fire and other occurrences
following harvesting.

A substantial portion of the Northwest Timberlands consists of sections of
land that are intermingled with or adjacent to sections of federal land managed
by the United States Department of Agriculture--Forest Service ("USFS").
Currently, the Partnership does not have legal access to approximately 16% of
the merchantable timber included in such timberlands. In many cases, access is
only, or most economically, achieved through a road or roads built across
adjacent federal land. In order to access such intermingled timberlands, the
Partnership has in the past obtained and will need to continue to obtain either
temporary or permanent access rights across these USFS lands. This process has
often been, and will likely continue to be, affected by, among other things, the
requirements of the Endangered Species Act (the "ESA"), the National
Environmental Policy Act and the Clean Water Act. See "Business and
Properties--Federal and State Regulations."

13
<PAGE> 14

The Partnership's Ability to Sell Logs for Export May be Limited. The
Partnership's business includes the sale of logs for export, which business is
substantially dependent on market and economic conditions in the major Asian
economies, particularly Japan, and may be affected by, among other things,
fluctuations in exchange rates, the availability of substitute products and
changes in building practices. In 1995 and the first six months of 1996, all of
the Partnership's export log sales originated from the Cascades Region and were
made to customers in Japan. Export log revenues accounted for approximately 10%
of the Partnership's total revenues in both 1995 and the first six months of
1996, and represented approximately 21% and 25%, respectively, of the
Partnership's operating income in such periods. After giving effect to the
Transactions, export log revenues on a pro forma basis would have accounted for
approximately 8% and 9% of the Partnership's total revenues in 1995 and in the
first six months of 1996, respectively, and would have represented approximately
18% and 20%, respectively, of the Partnership's operating income in such
periods. Historically, export grade logs have been sold at a premium over the
prices that would have been received if the logs had been sold in the domestic
market. From time to time, legislation has been introduced in Congress to
prohibit the export of logs originating from private lands. If a prohibition or
a significant restriction on private log exports were enacted, the Partnership
anticipates that it would respond by selling those logs currently marketed for
export to domestic customers at a lower price, which could have a material
adverse effect on the Partnership. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and
Properties--Federal and State Regulations."

The Partnership is Subject to Federal and State Environmental
Regulation. The Partnership's operations generate air emissions, discharge
industrial wastewater and stormwater and generate and dispose of both hazardous
and nonhazardous wastes. The Partnership is subject to regulation under, among
other laws, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and the ESA, as
well as similar state laws and regulations. Violations of various statutory and
regulatory programs that apply to the Partnership's operations can result in
civil penalties, remediation expenses, natural resource damages, potential
injunctions, cease and desist orders and criminal penalties. Laws and
regulations protecting the environment have generally become more stringent in
recent years and could become more stringent in the future. Some environmental
statutes impose strict liability, rendering a person liable for environmental
damage without regard to negligence or fault on the part of such person. There
can be no assurance that such laws or future legislation or administrative or
judicial action with respect to protection of the environment will not adversely
affect the Partnership or the operation of the Conversion Facilities.

The ESA and counterpart state legislation protect species threatened with
possible extinction. A number of species indigenous to the Timberlands have been
and in the future may be protected under these laws, including the northern
spotted owl, marbled murrelet, gray wolf, grizzly bear, mountain caribou, bald
eagle, red cockaded woodpecker, and various salmon species. The Northwest
Timberlands are often intermingled with federal land in or near areas that
include the habitats of a number of threatened or endangered species such as the
northern spotted owl and the grizzly bear. Protection of endangered and
threatened species may include restrictions on timber harvesting, road building
and other silvicultural activities on private, federal and state land containing
the affected species. See "Business and Properties -- Federal and State
Regulations."

Significant Increases in Federal Timber Supply May Affect the Partnership's
Results of Operations. Various factors, including environmental and endangered
species concerns, have limited, and are likely to continue to limit, the amount
of timber offered for sale by certain United States government agencies, which
historically have been major suppliers of timber to the United States forest
products industry. Federal timber under contract in the Pacific Northwest
decreased 86% from approximately 13.1 BBF in the fourth quarter of 1987 to 1.8
BBF in the fourth quarter of 1995. Although the Partnership believes that sales
of timber by United States government agencies are likely to remain at
relatively low levels for the foreseeable future, any reversal of policy that
substantially increases such sales could significantly reduce prices for logs,
lumber and other wood products, which could have a material adverse effect on
the Partnership.

Risks of Acquisition Strategy. Plum Creek intends to continue to pursue a
disciplined acquisition strategy as one means of increasing the value of the
Partnership's assets and per Unit distributable cash. The Partnership cannot
predict whether it will be successful in consummating any such acquisitions or
what the

14
<PAGE> 15

consequences of any such acquisitions would be. Moreover, there can be no
assurance that general economic or industry conditions will be conducive to the
Partnership's acquisition strategy or that the Partnership will be able to
identify and acquire any such assets or businesses on economically acceptable
terms. Plum Creek currently has no commitments to acquire any material assets.

Plum Creek's acquisition strategy involves numerous risks, including
difficulties inherent in the integration of operations and systems, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired businesses. In addition to the
expenditure of capital relating to the Riverwood Acquisition, future
acquisitions also may involve the expenditure of significant funds. Depending
upon the nature, size and timing of future acquisitions, Plum Creek may be
required to secure additional financing. There is no assurance that such
additional financing will be available to Plum Creek on acceptable terms. See
"The Transactions."

RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP

Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance. Although the Partnership will distribute all of its Available
Cash, there can be no assurance regarding the amounts of Available Cash to be
generated by the Partnership. The actual amounts of Available Cash will depend
upon numerous factors, including the Partnership's profitability, required
principal and interest payments on the Partnership's debt, the costs of
acquisitions (including related debt service payments), restrictions contained
in the Partnership's debt instruments, issuances of debt and equity securities
by the Partnership, fluctuations in working capital, capital expenditures,
adjustments in reserves, availability of merchantable timber, prevailing
economic conditions and financial, business and other factors, many of which are
beyond the control of the Partnership and the General Partner. The Partnership
Agreement gives the General Partner broad discretion in establishing reserves
that affect the amount of Available Cash. Because the business of the
Partnership is seasonal, the Partnership anticipates that it may make additions
to reserves during certain of the Partnership's quarters in order to fund
capital expenditures, interest payments and cash distributions with respect to
other quarters. The Partnership is required to establish reserves in respect of
future payments of principal and interest on the Partnership's indebtedness, and
the Partnership's ability to distribute cash may also be limited during the
existence of any events of default under any of the Partnership's debt
instruments. The agreement governing the First Mortgage Notes issued by
Manufacturing contains certain covenants which, subject to certain exceptions,
limit Manufacturing's ability to make cash distributions to the Partnership. As
a result of these and other factors, there can be no assurance regarding the
actual levels of cash distributions by the Partnership. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Partnership Has Incurred Substantial Indebtedness. On a pro forma
basis as of June 30, 1996, after giving effect to the Transactions, the
Partnership's indebtedness as a percentage of its total capitalization would
have been approximately 64%; and the Partnership will have the ability to incur
additional indebtedness under its new line of credit. See "Capitalization." The
ability of the Partnership to make principal and interest payments will depend
on its future performance, which performance is subject to a number of factors,
many of which are outside the Partnership's and the General Partner's control.
The Partnership's long-term debt agreements and lines of credit contain certain
restrictive covenants, including limitations on harvest levels, investments,
sales of assets, cash distributions and the amount of future indebtedness. The
payment of principal and interest on such indebtedness will reduce the cash
available to make distributions on the Units. Compliance with the requirements
and covenants of such indebtedness limits the Partnership's ability to make
distributions to Unitholders. The Partnership's leverage may also adversely
affect the ability of the Partnership to finance its future operations and
capital needs, may limit its ability to pursue other business opportunities and
may make its results of operations more susceptible to adverse economic
conditions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Partnership Indebtedness."

Holders of Units Have Limited Voting Rights; The General Partner Manages
and Controls the Partnership. The General Partner manages and controls the
activities of the Partnership. Unlike the holders of common stock in a
corporation, holders of Units have only limited voting rights on matters
affecting the Partnership's business. Holders of Units have no right to elect
the General Partner on an annual or other

15
<PAGE> 16

continuing basis. The General Partner may not be removed at any time unless the
approval of the holders of at least 66 2/3% of the outstanding Units (excluding
Units owned by the General Partner and its affiliates) is obtained. As a result,
holders of Units have limited influence on matters affecting the operation of
the Partnership, and third parties may find it difficult to attempt to gain
control from the General Partner or influence the activities of the Partnership.

Conflicts of Interest. Certain conflicts of interest could arise as a
result of the General Partner's relationships with Corp. I, on the one hand, and
the Partnership, Manufacturing and Marketing, on the other hand. The board of
directors of Corp. I and the officers of the General Partner have a duty to
manage such entities in the best interests of their shareholders and partners,
respectively. As the general partner of the Partnership, the General Partner has
a fiduciary duty to manage the Partnership in the best interests of Unitholders.
The duties of the General Partner, as general partner, to the Partnership and
the Unitholders, therefore, may come into conflict with the duties of the
directors of Corp. I and the officers of the General Partner to their
shareholders and partners, respectively. Conflicts of interest may arise in the
following situations, among others: certain actions taken by the General Partner
may affect the amount of cash available for distribution to Unitholders; sales
of logs by the Partnership to Manufacturing and other dealings between these
entities and between the Partnership and Marketing benefit the General Partner
to the extent of its direct ownership of 4% of the common stock of Marketing and
its 2% general partner interest in Manufacturing, in addition to benefits
derived from its 2% general partner interest in the Partnership and its right to
receive incentive distributions; the General Partner and its affiliates are
reimbursed by the Partnership for expenses incurred on behalf of the
Partnership; whenever possible, the General Partner intends to limit the
Partnership's liability under contractual arrangements to the Partnership's
assets, with the other party to such arrangements having no recourse to the
General Partner or its assets; and in certain limited circumstances, the General
Partner will have the right to acquire the outstanding Units at specified
prices. In addition, the Partnership Agreement contains provisions that waive or
restrict fiduciary responsibilities and other duties that would otherwise apply
to the General Partner. See "Conflicts of Interest."

Ability of the Partnership to Issue Additional Units. Subject to certain
exceptions, the Partnership may, in its sole discretion without the approval of
the Unitholders, issue an unlimited number of additional Units or other equity
securities of the Partnership ranking pari passu or junior to the Units for such
consideration and on such terms and conditions as are established by the General
Partner. Based on the circumstances of each case, the issuance of additional
Units or other equity securities may dilute the value of the interests of the
then-existing Unitholders in the net assets of the Partnership. Moreover, the
General Partner is not required to make additional capital contributions to the
Partnership in order to maintain its general partner interest, including its
right to incentive distributions, following the issuance of additional Units.
See "Summary Description of the Partnership Agreement--Issuance of Additional
Units and Securities" and "Cash Distribution Policy."

Unitholders May Not Have Limited Liability in Certain Circumstances. The
limitations on the liability of Unitholders for the obligations of a limited
partnership have not been clearly established in some states. If it were
determined that the Partnership had been conducting business in any state
without compliance with the applicable limited partnership statute, or that the
right or the exercise of the right by the Unitholders as a group to remove or
replace the General Partner, to make certain amendments to the Partnership
Agreement or to take other action pursuant to the Partnership Agreement
constituted participation in the "control" of the Partnership's business, then
the Unitholders could be held liable in certain circumstances for the
Partnership's obligations to the same extent as a general partner. See "Summary
Description of the Partnership Agreement--Limited Liability" for a discussion
of the limitations on liability and the implications thereof to a Unitholder.

TAX RISKS

For a general discussion of the expected federal income tax consequences of
acquiring, owning and disposing of Units, see "Tax Considerations."

Tax Treatment is Dependent on Partnership Status. The availability to a
Unitholder of the federal income tax benefits of an investment in the
Partnership depends, in large part, on the classification of the Partnership as
a partnership for federal income tax purposes. Based on certain representations
and covenants made by the General Partner and the Partnership, the Partnership's
counsel is of the opinion that, under

16
<PAGE> 17

current law, the Partnership is classified as a partnership for federal income
tax purposes. However, except as described in "Tax Considerations," no ruling
from the Internal Revenue Service as to such status has been or will be
requested or received, and the opinion of the Partnership's counsel is not
binding on the Internal Revenue Service. Moreover, in order for the Partnership
to continue to be classified as a partnership for federal income tax purposes,
at least 90% of the Partnership's gross income for each taxable year must
consist of qualifying income (as defined below). See "Tax
Considerations--Partnership Status."

If the Partnership were classified as an association taxable as a
corporation for federal income tax purposes, the Partnership would pay tax on
its income at corporate rates (currently at a 35% federal rate), thereby
significantly reducing the cash available for distribution to Unitholders. In
that case, distributions would generally be taxed again to the Unitholders as
dividend income, and no income, gains, losses or deductions would flow through
to the Unitholders. Treatment of the Partnership as an association taxable as a
corporation or otherwise as a taxable entity would result in a material
reduction in the anticipated cash flow and after-tax return to the Unitholders.
See "Tax Considerations--Partnership Status."

There can be no assurance that the law will not be changed so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level taxation.
The Partnership Agreement provides that, if a law is enacted or existing law is
modified or interpreted in a manner that subjects the Partnership to taxation as
a corporation or otherwise subjects the Partnership to entity level taxation for
federal, state or local income tax purposes, certain provisions of the
Partnership Agreement relating to the Target Amounts will be subject to change,
including a decrease in the amounts thereof to reflect the impact of such law on
the Partnership. See "Cash Distribution Policy--Quarterly Distributions of
Available Cash--Adjustment of Target Amounts."

No Internal Revenue Service Ruling With Respect to Tax
Consequences. Except as described in "Tax Considerations," no ruling has been
requested from the Internal Revenue Service with respect to classification of
the Partnership as a partnership for federal income tax purposes or any other
matter affecting the Partnership. Accordingly, the Internal Revenue Service may
adopt positions that differ from the conclusions of the Partnership's counsel
expressed herein. It may be necessary to resort to administrative or court
proceedings in an effort to sustain some or all of the conclusions of the
Partnership's counsel, and some or all of such conclusions ultimately may not be
sustained. The costs of any contest with the Internal Revenue Service will be
borne directly or indirectly by some or all of the Unitholders and the General
Partner.

Tax Liability Exceeding Cash Distributions or Proceeds from Dispositions of
Units. A holder of Units will be required to pay federal income taxes and, in
certain cases, state and local income taxes on his allocable share of the
Partnership's income, whether or not he receives cash distributions from the
Partnership. No assurance can be given that a Unitholder will receive cash
distributions in excess of his allocable share of taxable income from the
Partnership or even the tax liability to him resulting from that income.
Further, a Unitholder may incur a tax liability, in excess of the amount of cash
received, upon the sale of his Units. See "Tax Considerations--Other Tax
Considerations" for a discussion of certain state and local tax considerations
that may be relevant to prospective Unitholders.

Ownership of Units by Tax-Exempt Organizations and Certain Other
Investors. Investments in Units by certain tax-exempt entities, regulated
investment companies and foreign persons raise issues unique to such persons.
For example, virtually all of the taxable income derived by most organizations
exempt from federal income tax (including individual retirement accounts and
other retirement plans) from the ownership of the Units will be unrelated
business taxable income and thus may be taxable to such a Unitholder. See "Tax
Considerations--Tax-Exempt Organizations and Certain Other Investors."

Deductibility of Losses. In the case of taxpayers subject to the passive
loss rules (generally, individuals and closely held corporations), losses
generated by the Partnership, if any, will only be available to offset income
generated by the Partnership and cannot be used to offset income from other
activities, including passive activities or investments. Unused losses may be
deducted when the Unitholder disposes of all of his remaining Units in a fully
taxable transaction with an unrelated party. Net passive income from the
Partnership may be offset by unused Partnership losses carried over from prior
years, but not by losses from other passive activities, including losses from
other publicly traded partnerships. See "Tax Considerations--Tax Consequences
of Unit Ownership--Limitations on Deductibility of Partnership Losses."

17
<PAGE> 18

Potential Audits. The Partnership's tax return may be audited, and any
such audit could result in an audit of a Unitholder's individual tax return as
well as increased liabilities for taxes because of adjustments resulting from
the audit. No assurance can be given that the Partnership will not be audited by
the Internal Revenue Service or various state authorities or that tax
adjustments will not be made. The rights of a Unitholder owning less than a 1%
profits interest in the Partnership to participate in the income tax audit
process are very limited. Further, any adjustments in the Partnership's returns
will lead to adjustments in the Unitholders' returns and may lead to audits of
Unitholders' returns and adjustments of items unrelated to the Partnership. Each
Unitholder would bear the cost of any expenses incurred in connection with an
examination of such Unitholder's personal tax return.

Proposed Changes in Federal Income Tax Laws. Legislation passed by
Congress in November 1995 (the "1995 Proposed Legislation") would have altered
the tax reporting procedures and the deficiency collection procedures applicable
to large partnerships such as the Partnership (generally defined as electing
partnerships with more than 100 partners) and would have made certain additional
changes to the treatment of large partnerships. Such legislation was generally
intended to simplify the administration of the tax reporting and deficiency
collection rules governing large partnerships. The 1995 Proposed Legislation was
vetoed by President Clinton on December 6, 1995. In addition, the proposed
Revenue Reconciliation Act of 1996 (the "1996 Proposed Legislation"), currently
pending in Congress, would affect the taxation of certain financial products,
including partnership interests.

As of the date of this Prospectus, it is not possible to predict whether
any of the changes which were set forth in the 1995 Proposed Legislation, the
1996 Proposed Legislation, or any other changes in the federal income tax laws
that would impact the Partnership and the holders of Units will ultimately be
enacted, or if enacted, what form they will take, what the effective dates will
be and what, if any, transition rules will be provided. See "Tax
Considerations--Changes In Federal Income Tax Laws."

Uniformity of Units and Nonconforming Depreciation and Amortization
Conventions. Because the Partnership cannot match transferors and transferees
of Units, uniformity of the economic and tax characteristics of the Units to a
purchaser of Units must be maintained. To maintain uniformity, the Partnership
has adopted certain depreciation and amortization conventions that do not
conform with all aspects of certain proposed and final Treasury Regulations. The
Internal Revenue Service may challenge those conventions and, if such a
challenge were sustained, the uniformity of Units could be affected.
Non-uniformity could adversely affect the amount of tax depreciation available
to a purchaser of Units and could have a negative impact on the value of the
Units. See "Tax Considerations--Uniformity of Units."

Partnership Tax Information. The Partnership furnishes each Unitholder
with a Schedule K-1 that sets forth his allocable share of income, gains, losses
and deductions. In preparing these schedules, the Partnership uses various
accounting and reporting conventions and has adopted various depreciation and
amortization methods. There is no assurance that these schedules will yield a
result that conforms to statutory or regulatory requirements or to
administrative pronouncements of the Internal Revenue Service.

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth under
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" and "--Liquidity and Capital Resources" and
"Business and Properties," as well as within the Prospectus generally and within
documents incorporated by reference into this Prospectus. In addition, when used
in this Prospectus, the words "believes," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to a number of risks and uncertainties. Actual results in the future
could differ materially from those described in the forward-looking statements
as a result of the risk factors set forth herein and the matters set forth in
the Prospectus generally. Plum Creek cautions the reader, however, that this
list of risk factors may not be exhaustive. Plum Creek undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.

18
<PAGE> 19

THE TRANSACTIONS

THE RIVERWOOD ACQUISITION

On October 18, 1996, the Partnership consummated its acquisition of the
Southern Timberlands and the Southern Facilities (collectively, the "Riverwood
Assets"). As part of the Riverwood Acquisition, Plum Creek entered into a
long-term agreement to supply a significant portion of the pine pulpwood and
residual chip requirements of the Riverwood Paperboard Plant, as well as a
portion of the plant's needs for hardwood pulpwood, at prevailing market prices.
Riverwood International is a provider of paperboard packaging to multinational
beverage and food companies. The Southern Facilities will be owned and operated
by the Partnership's subsidiary, Manufacturing. See "Business and Properties."
Under the Asset Purchase Agreement with Riverwood International, Plum Creek has
assumed certain pre-closing liabilities related to the Riverwood Assets and has
agreed to indemnify Riverwood International for certain post-closing
liabilities. The purchase price for the Riverwood Assets was $540 million in
cash, plus $11.9 million for working capital as of the closing date, subject to
certain customary post-closing adjustments.

THE FINANCING

Concurrently with the consummation of the Riverwood Acquisition, the
Partnership entered into two bank credit facilities with Bank of America
National Trust & Savings Association (the "Bank"), consisting of a five-year
$400 million unsecured, revolving credit facility (the "New Line of Credit") and
an 18-month $250 million unsecured bridge facility (the "Bridge Facility" and,
together with the New Line of Credit, the "New Bank Facilities"). The New Bank
Facilities replaced the Partnership's two pre-existing lines of credit which had
permitted the Partnership to borrow, in the aggregate, up to $135 million (the
"Existing Lines of Credit"). The Partnership borrowed $50 million under the
Bridge Facility and $322 million under the New Line of Credit and used such
funds to pay a portion of the purchase price of the Riverwood Assets and repay
all outstanding borrowings under the Existing Lines of Credit ($12 million). For
a summary of the terms of the New Bank Facilities, see "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Partnership
Indebtedness." The Partnership intends to use the net proceeds of this offering
to repay a portion of the indebtedness under the New Bank Facilities. See "Use
of Proceeds."

On October 11, 1996 Plum Creek consummated its sale to Stimson Lumber
Company ("Stimson") of the Newport Timberlands and the related Arden Sawmill
(collectively, the "Newport Asset Sale") for approximately $143.7 million in
cash plus $8.5 million for working capital as of the closing date, subject to
certain customary post-closing adjustments. The Partnership used the net
proceeds from the Newport Asset Sale to pay a portion of the purchase price for
the Riverwood Assets. The Partnership intends that the disposition of the
Newport Timberlands and the acquisition of the Southern Timberlands will
constitute a like-kind exchange for federal income tax purposes. Under the terms
of the two asset sale agreements (collectively, the "Newport Agreement") with
Stimson, Plum Creek will provide customary indemnification to Stimson for
certain pre-closing liabilities related to the Newport Timberlands and the Arden
Sawmill.

The Partnership has reached tentative agreement with a group of
institutional investors to issue approximately $200 million aggregate principal
amount of senior notes (the "New Notes") in a private placement that is not
registered under the Securities Act. Such issuance would be consummated
subsequent to the closing of this offering. The Partnership expects to use the
net proceeds from the New Notes, if issued, to repay a portion of the
outstanding borrowings under the New Line of Credit. Although the issuance of
the New Notes is subject to the negotiation of definitive documentation, the
Partnership expects that the New Notes will be unsecured obligations of the
Partnership and that the terms of the New Notes will be substantially similar to
the terms of its existing senior notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Partnership
Indebtedness." The Partnership may postpone or not consummate the New Notes
offering.

This offering, the New Bank Facilities and the Newport Asset Sale are
referred to collectively herein as the "Financing." See "Use of Proceeds."

19
<PAGE> 20

USE OF PROCEEDS

The net proceeds to the Partnership from the sale of Units offered hereby
are estimated to be approximately $128.8 million ($148.2 million if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated underwriting discount and estimated offering expenses. The Partnership
intends to use the net proceeds from this offering to repay indebtedness under
the New Bank Facilities. See "The Transactions."

Borrowings under the Bridge Facility, which were used to finance a portion
of the purchase price of the Riverwood Acquisition, bear interest at a floating
rate, currently 5.86%, and will mature on April 17, 1998, and borrowings under
the New Line of Credit bear interest at a floating rate, currently 5.86%, and
will mature October 17, 2001.

The following sets forth the anticipated sources and uses of funds for the
Financing and the Riverwood Acquisition:

<TABLE>
<CAPTION>
PRIOR TO
THIS OFFERING THIS OFFERING
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
SOURCES OF FUNDS:
Cash on hand(1).............................................. $ 46,296 $ --
Gross proceeds from this offering............................ -- 136,425
Bridge Facility.............................................. 50,000 --
New Line of Credit........................................... 322,000(2) --
Gross proceeds from the Newport Asset Sale(3)................ 152,187 --
--------- ---------
Total sources.............................................. $ 570,483 $ 136,425
========= =========
USES OF FUNDS:
Purchase price for Riverwood Assets(4)....................... $ 551,919 $ --
Repayment of Existing Lines of Credit........................ 12,000 --
Repayment of Bridge Facility................................. -- 50,000
Repayment of New Line of Credit.............................. -- 78,766
Estimated fees and expenses.................................. 6,564 7,659
--------- ---------
Total uses................................................. $ 570,483 $ 136,425
========= =========
</TABLE>

- ---------------

(1) Includes the proceeds of certain ordinary course asset dispositions.

(2) Represents borrowings under the $400 million New Line of Credit. If issued,
the net proceeds of the sale of the New Notes will be used to repay
outstanding indebtedness under the New Line of Credit. See "The
Transactions -- The Financing."

(3) Includes the $143.7 million cash sale price plus $8.5 million for working
capital as of the closing date.

(4) Includes the $540 million cash purchase price plus $11.9 million for working
capital as of the closing date. Excludes assumed liabilities with respect to
certain employee benefits estimated to be approximately $2.7 million, and
estimated acquisition related expenses of $2.6 million included in
"Estimated fees and expenses."

20
<PAGE> 21

CAPITALIZATION

The following table sets forth the unaudited combined capitalization of the
Partnership at June 30, 1996 and the unaudited combined pro forma as adjusted
capitalization of the Partnership at such date after giving effect to the
Transactions. The table should be read in conjunction with the information set
forth in "The Transactions" and the historical and pro forma financial
statements and notes thereto included elsewhere or incorporated by reference in
this Prospectus.

<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------
PRO FORMA
AS
HISTORICAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion(1):
Senior Notes due 2007........................................ $138,600 $ 138,600
Senior Notes due 2009........................................ 150,000 150,000
First Mortgage Notes......................................... 131,200 131,200
Existing Lines of Credit..................................... 97,500(2) --
New Bank Facilities.......................................... -- 375,765
-------- ----------
Total debt..................................................... $517,300 $ 795,565
Partners' capital:
General Partner.............................................. $ (770) $ 1,326(3)
Limited Partners............................................. 219,676 451,121(3)
-------- ----------
Total partners' capital........................................ $218,906 $ 452,447
-------- ----------
Total capitalization........................................... $736,206 $1,248,012
======== ==========
</TABLE>

- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Partnership Indebtedness."

(2) The amount outstanding under the Existing Lines of Credit at October 18,
1996, the date the Existing Lines of Credit were repaid in full and
terminated, was $12.0 million.

(3) Includes the net proceeds from this offering and the net gain on the Newport
Asset Sale.

21
<PAGE> 22

PRICE RANGE OF UNITS

The Units are traded on the New York Stock Exchange. As of September 30,
1996, there were approximately 54,000 beneficial owners of the 40,608,300 Units
then outstanding.

Trading price data, as reported by the New York Stock Exchange, and
declared cash distribution information for the periods indicated are as follows:

<TABLE>
<CAPTION>
CASH
DISTRIBUTION
DECLARED
HIGH LOW PER UNIT
------ ------ -------------
<S> <C> <C> <C>
1994
First Quarter................................................ $ 32 1/2 $ 23 $ 0.38
Second Quarter............................................... 28 5/8 21 1/2 0.43
Third Quarter................................................ 26 1/2 22 5/8 0.43
Fourth Quarter............................................... 24 3/4 19 5/8 0.43
1995
First Quarter................................................ 24 19 7/8 0.49
Second Quarter............................................... 26 1/8 21 7/8 0.49
Third Quarter................................................ 26 5/8 23 5/8 0.49
Fourth Quarter............................................... 25 1/4 21 7/8 0.49
1996
First Quarter................................................ 27 3/4 23 3/4 0.49
Second Quarter............................................... 27 5/8 23 1/4 0.51
Third Quarter................................................ 27 22 7/8 0.51(1)
Fourth Quarter (through October 22, 1996).................... 27 1/8 25 --
</TABLE>

- ---------------

(1) The General Partner has declared a distribution of $0.51 per Unit payable on
November 29, 1996 to holders of record on November 15, 1996.

The last reported sale price of the Units on the New York Stock Exchange on
October 22, 1996 was $26 3/4 per Unit.

22
<PAGE> 23

CASH DISTRIBUTION POLICY

GENERAL

The Partnership makes distributions to Unitholders and the General Partner
with respect to each calendar quarter in an amount equal to 100% of its
Available Cash from operations for such quarter. Available Cash is defined below
in "--Quarterly Distributions of Available Cash" and generally means, with
respect to any quarter of the Partnership, the net income of the Partnership for
such quarter plus certain non-cash items plus reductions to reserves less
certain capital expenditures, principal payments on indebtedness and additions
to reserves. The General Partner's decisions regarding amounts to be placed in
or released from reserves have a direct impact on the amount of Available Cash
because increases and decreases in reserves are taken into account in computing
Available Cash. The General Partner has broad discretion in establishing
reserves and its decisions regarding reserves could have a significant impact on
the amount of Available Cash. The timing and amount of additions and reductions
to reserves may affect the amount of incentive distributions payable to the
General Partner.

In general, the Partnership Agreement provides for quarterly distributions
of Available Cash from the Partnership to be made 98% to all Unitholders, pro
rata, and 2% to the General Partner, until certain Target Amounts of
distributions of Available Cash to the Unitholders each quarter are achieved. To
the extent the distributions in any quarter exceed such Target Amounts, the
General Partner's interest also includes the right to receive incentive
distributions, as described below. See "--Quarterly Distributions of Available
Cash-- Priority of Distributions." The Partnership distributed $0.49 per Unit
with respect to each calendar quarter in 1995 and the quarter ended March 31,
1996. With respect to the quarter ended June 30, 1996, the Partnership
distributed $0.51 per Unit. There can be no assurance that distributions at
these levels can be maintained in the future. Because the distributions with
respect to each such quarter were in excess of the Target Amounts, the General
Partner received incentive distributions. As a result, with respect to each
quarter in 1995 and the first quarter of 1996, the Unitholders received 76.7%
and the General Partner received 23.3% of the aggregate amount distributed. With
respect to the second quarter of 1996, the Unitholders received 76.1% and the
General Partner received 23.9% of the aggregate amount distributed. The
Partnership is required to make distributions of Available Cash within 60 days
after the end of each calendar quarter. With respect to the quarter ended
September 30, 1996, the General Partner has declared a distribution of $0.51 per
Unit payable on November 29, 1996 to holders of record on November 15, 1996.
Such distribution will be payable on the Units purchased in this offering.

Management of the Partnership has from time to time held, and may in the
future hold, discussions with representatives of the General Partner to explore
the possibility of a transaction which would reduce, restructure or eliminate
the General Partner's right to receive incentive distributions. Both management
of the Partnership and the General Partner believe that such a transaction
should only be effected if, over the long term, the results of such transaction
would likely be accretive to per Unit distributable cash. The Partnership is
unable to predict whether future discussions may be undertaken or, if
undertaken, the outcome of any such discussions. In any event, any such
transaction would be subject to the approval of the Conflicts Committee of the
Board of Directors of Corp. I. See "Management" and "Conflicts of Interest." In
addition, the Partnership Agreement would require any such transaction to be
approved by the Unitholders. See "Summary Description of the Partnership
Agreement."

Cash from Capital Transactions is defined in the Glossary and generally is
generated only by borrowings (other than for working capital purposes), sales of
debt and equity securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other assets disposed of in the
ordinary course of business). Cash from Capital Transactions may be distributed
or retained by the Partnership for reinvestment or other Partnership purposes as
more fully described under "--Distributions of Cash from Capital Transactions"
below, except that the Partnership is generally required to distribute proceeds
from any such transaction in an amount per Unit equal to 125% of any federal
income tax liability imposed upon an individual Unitholder with respect to a
Unit as a consequence of such transaction. Distributions of cash made in
connection with the dissolution and liquidation of the Partnership will be made
as described below under "--Distributions of Cash Upon Liquidation."

23
<PAGE> 24

QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

Available Cash. Available Cash for any quarter consists of:

(a) the sum of

(i) the Partnership's net income or loss for such quarter (excluding
gain on the sale of capital assets),

(ii) depreciation, depletion, amortization and certain other noncash
charges (net of noncash credits) utilized in determining net income of the
Partnership for such quarter,

(iii) the amount of any reduction in reserves of the Partnership of
the types referred to in (b)(v) below during such quarter,

(iv) proceeds to the Partnership from the sale of timberland acreage
which are designated by the General Partner at the time of sale as acreage
for which the sales proceeds are to be included in the determination of
Available Cash (not to exceed 150,000 acres in the aggregate during the
existence of the Partnership, of which approximately 88,000 acres have been
sold as of September 30, 1996) with respect to the quarter in which such
sale occurs, and

(v) Cash from Capital Transactions received by the Partnership during
such quarter in specific contemplation that such Cash from Capital
Transactions will be used to refund or refinance any principal debt
payments of the type specified in (b)(i) below which was made during the
two previous quarters,

(b) less the sum of

(i) all principal debt payments made by the Partnership in such
quarter (excluding any principal debt payments made with the proceeds from
Cash from Capital Transactions received by the Partnership during such
quarter or the immediately preceding four quarters),

(ii) capital expenditures made by the Partnership during such quarter
(excluding any capital expenditures made with Cash from Capital
Transactions received by the Partnership during such quarter or the
immediately preceding four quarters or capital expenditures anticipated to
be financed with Cash from Capital Transactions to be received by the
Partnership prior to the end of the next succeeding quarter),

(iii) the amount of any capital expenditures, or investments as
specified in clause (b)(iv) below, made by the Partnership in the
immediately preceding quarter which was anticipated would be financed from
Cash from Capital Transactions but which have not been financed from such
source prior to the end of the quarter succeeding the quarter in which any
such capital expenditure or investment was made,

(iv) investments in any entity (including subsidiaries and affiliates)
to the extent that such investments are not otherwise included under
clauses (b)(i), (ii) or (iii) above (excluding any such investments made
with Cash from Capital Transactions received by the Partnership during such
quarter or the immediately preceding four quarters or investments
anticipated to be made with Cash from Capital Transactions to be received
by the Partnership prior to the end of the next succeeding quarter), and

(v) the amount of reserves established by the Partnership during such
quarter which are necessary or appropriate (A) to provide funds for the
future payment of items of the type specified in clauses (b)(i) and (b)(ii)
above, (B) to provide for additional working capital, (C) to provide funds
for cash distributions with respect to any one or more of the next four
quarters or (D) to provide funds for the future payment of interest in an
amount equal to the interest to be accrued in the next quarter.

Each of the items set forth under clauses (a)(i) through (v) and clauses
(b)(i) through (v) inclusive for the Partnership will include a corresponding
percentage of each such item of any entity whose income is accounted for on a
consolidated or combined basis with the income of the Partnership, in each case
in direct proportion to the Partnership's percentage interest in such entity,
provided, that the items included under clauses (a)(i) through (v) for such
entity shall only be included to the extent that the General Partner determines
such amount to be legally available for dividends or distributions to the
Partnership by such entity.

24
<PAGE> 25

As the Partnership owns a 98% profit and loss partnership interest in
Manufacturing and 96% of the capital stock of Marketing, each of the items set
forth above will include 98% and 96% of the corresponding amount of such item
attributable to Manufacturing and Marketing, respectively.

The Partnership has the authority to issue an unlimited number of
additional Units or other equity securities of the Partnership ranking pari
passu or junior to the Units for such consideration and on such terms and
conditions as are established by the General Partner, in its discretion without
the approval of the Unitholders. Holders of any additional Units, including the
Units offered hereby, will be entitled to share equally with the then existing
holders of Units in distributions of Available Cash by the Partnership. As a
result, the issuance of additional Units or other equity securities of the
Partnership may dilute the value of the Units. Moreover, the General Partner is
not required to make any additional capital contributions to the Partnership in
order to maintain its general partner interest, including its right to receive
incentive distributions.

Priority of Distributions. Distributions by the Partnership of Available
Cash with respect to any quarter are made 98% to all Unitholders, pro rata, and
2% to the General Partner until there has been distributed in respect of each
outstanding Unit an amount equal to $0.21 2/3 per Unit (the "First Target
Amount"). The General Partner is entitled to receive distributions with respect
to a particular quarter to the extent distributions of Available Cash to
Unitholders for such quarter exceed the First Target Amount as follows:

first, 88% of any such Available Cash then remaining to Unitholders,
pro rata, and 12% to the General Partner until Unitholders have received a
total of $0.23 1/3 for such quarter in respect of each outstanding Unit
(the "Second Target Amount");

second, 78% of any such Available Cash then remaining to Unitholders,
pro rata, and 22% to the General Partner until Unitholders have received a
total of $0.25 for such quarter in respect of each outstanding Unit (the
"Third Target Amount");

third, 68% of any such Available Cash then remaining to Unitholders,
pro rata, and 32% to the General Partner until Unitholders have received a
total of $0.28 1/3 for such quarter in respect of each outstanding Unit
(the "Fourth Target Amount"); and

thereafter, 63% of any such Available Cash then remaining to
Unitholders, pro rata, and 37% to the General Partner.

The distributions to the General Partner set forth above that are in excess of
its 2% general partner interest represent incentive distributions. The
Partnership has made quarterly distributions in excess of the highest Target
Amount in respect of every quarter since the second quarter of 1992.

The First through Fourth Target Amounts (collectively, the "Target
Amounts") are subject to adjustment as described under "--Adjustment of Target
Amounts" below.

Adjustment of Target Amounts. Each of the Target Amounts will be
proportionately adjusted upward or downward, as appropriate, in the event of any
distribution, combination or subdivision of Units (whether effected by a
distribution payable in Units or otherwise). In addition, if a distribution is
made of Cash from Capital Transactions, the Target Amounts will also be adjusted
proportionately downward to equal the product resulting from multiplying the
Target Amounts by a fraction, the numerator of which is the Unrecovered Capital
(as defined below) immediately after giving effect to such distribution and the
denominator of which is the Unrecovered Capital immediately prior to such
distribution. The "Unrecovered Capital" with respect to the Units means, at any
time (i) $6.67 (the initial public offering price per Unit of the originally
issued Units after adjusting for a three-for-one split in December 1993), less
(ii) the aggregate distributions of Cash from Capital Transactions on such
Units. Since the inception of the Partnership there have been no distributions
of Cash from Capital Transactions, and no distributions of Cash from Capital
Transactions are currently contemplated.

The Target Amounts will also be adjusted if legislation is enacted that
causes the Partnership to become taxable as a corporation or as an association
taxable as a corporation for federal income tax purposes. In such event, each
Target Amount for each quarter thereafter would be reduced to an amount equal to
the product of

25
<PAGE> 26

(i) the Target Amount, and (ii) one minus the sum of (x) the highest marginal
federal corporate income tax rate (expressed as a percentage) applicable to the
Partnership during the year in which such quarter occurs plus (y) the effective
overall state and local income tax rate (expressed as a percentage) applicable
to the Partnership for the calendar year next preceding the calendar year in
which such quarter occurs (after taking into account the benefit of any
deduction allowable for federal income tax purposes with respect to the payment
of state and local income taxes). For example, assuming the Partnership was not
previously subject to federal, state and local income tax, if the Partnership
were to become taxable as an entity for federal income tax purposes and the
Partnership became subject to a maximum marginal federal, and effective state
and local, income tax rate of 38%, then the Target Amounts would each be reduced
to 62% of the amount thereof immediately prior to such adjustment.

DISTRIBUTIONS OF CASH FROM CAPITAL TRANSACTIONS

Cash from Capital Transactions may be distributed or retained by the
Partnership for reinvestment or other Partnership purposes in the sole
discretion of the General Partner, except that the Partnership is required to
distribute Cash from Capital Transactions in an amount per Unit equal to 125% of
the federal income tax liability imposed upon an individual Unitholder with
respect to a Unit as a consequence of the transaction (assuming the maximum
marginal federal income tax rate for an individual taxpayer is in effect for all
Unitholders at the time of the transaction) unless (i) the aggregate amount in
the year in which the transaction occurs is $0.10 or less per Unit or (ii) the
distribution is prohibited by any of the Partnership's debt instruments or other
requirements binding upon the Partnership or any of its subsidiaries, in which
case no distribution is required. Any Cash from Capital Transactions distributed
by the Partnership will be distributed 98% to all Unitholders, pro rata, and 2%
to the General Partner until there has been distributed with respect to each
outstanding Unit since the Partnership commenced operations through such date,
distributions of Cash from Capital Transactions which in the aggregate for all
Unitholders is equal to $287,050,000 (the product of the initial public offering
price per Unit ($6.67, after adjusting for a three-for-one split in December
1993) and the number of originally issued Units). Thereafter, all Cash from
Capital Transactions, to the extent distributed by the General Partner, will be
distributed as described above under "--Quarterly Distributions of Available
Cash." Since the inception of the Partnership there have been no distributions
of Cash from Capital Transactions, and no distributions of Cash from Capital
Transactions are currently contemplated.

DISTRIBUTIONS OF CASH UPON LIQUIDATION

In connection with the dissolution and liquidation of the Partnership, the
proceeds of such liquidation will be applied, first, in accordance with the
provisions of the Partnership Agreement and applicable law to the payment of
creditors of the Partnership in order of priority provided by law, to the
creation of a reserve for contingent liabilities in any amount determined by the
liquidator and, thereafter, any remaining proceeds (or assets in kind) will be
distributed to Unitholders and the General Partner as set forth below.

In the event of a liquidation, the holders of Units would be entitled to
share with the General Partner in the remainder of the Partnership's assets in
proportion to their respective capital account balances in the Partnership,
after giving effect to the following allocations of any gain or loss realized
from sales or other dispositions of assets following commencement of the
dissolution and liquidation of the Partnership ("Termination Capital
Transactions"), including any unrealized gain or loss attributable to assets
distributed in kind. Any such gain ("Net Termination Gain") will be allocated as
follows:

first, to each partner having a deficit balance in such partner's
capital account in the proportion of such deficit to the deficit balances
in the capital accounts of all partners, until each such partner has been
allocated Net Termination Gain equal to such deficit in its capital
account;

second, 98% to all Unitholders, pro rata, and 2% to the General
Partner until the capital account of each outstanding Unit is equal to the
sum of (i) the Unrecovered Capital in respect of such Unit, and (ii) the
First Target Amount;

26
<PAGE> 27

third, 88% to Unitholders, pro rata, and 12% to the General Partner
until the capital account of each outstanding Unit is equal to the sum of
(i) the Unrecovered Capital in respect of such Unit, and (ii) the Second
Target Amount;

fourth, 78% to Unitholders, pro rata, and 22% to the General Partner
until the capital account of each outstanding Unit is equal to the sum of
(i) the Unrecovered Capital in respect of such Unit, and (ii) the Third
Target Amount;

fifth, 68% to Unitholders, pro rata, and 32% to the General Partner
until the capital account of each outstanding Unit is equal to the sum of
(i) the Unrecovered Capital in respect of such Unit, and (ii) the Fourth
Target Amount; and

thereafter, 63% to all Unitholders, pro rata, and 37% to the General
Partner.

Any loss or unrealized loss ("Net Termination Loss") will be allocated
first, to the General Partner and the Unitholders, in proportion to the positive
balances in such partner's capital accounts until all such balances are reduced
to zero and, second, to the General Partner.

Prior to the completion of this offering, Unitholders' capital accounts
will generally equal, on a per Unit basis, (i) $6.67 (the initial per Unit
offering price after adjusting for a three-for-one split in December 1993), plus
(ii) the per Unit share of all allocations of Partnership taxable and tax-exempt
income made to the Unitholders for purposes of maintaining capital accounts
since the inception of the Partnership, less (iii) the per Unit share of the sum
of (x) all allocations of Partnership deductible and nondeductible expenditures
made to the Unitholders for purposes of maintaining capital accounts, plus (y)
all nonliquidating distributions to the Unitholders, e.g., quarterly cash
distributions, since the inception of the Partnership. At all times every
Unitholder will have the identical per Unit capital account, and thus the same
liquidation rights. Purchasers of Units subsequent to an offering (except in a
new issuance of Units by the Partnership as described below) inherit the capital
account balance of the prior partner. At December 31, 1995 the per Unit capital
account of all Unitholders was $8.85.

The Partnership Agreement requires that prior to the issuance of additional
Units or certain redemptions of Units, unrealized gain or loss must be allocated
to the Unitholders and the General Partner and reflected in their capital
accounts in accordance with the Net Termination Gains and Losses allocations, as
described above. As a result, just prior to the completion of this offering,
unrealized gain or loss will be allocated to the Unitholders and the General
Partner and reflected in their capital accounts in accordance with the above Net
Termination Gains and Losses allocations until the capital account of each
outstanding Unit is equal to the offering price of the newly issued Units. All
Unitholders at the completion of this offering will have a per Unit capital
account equal to the offering price. Subsequently, a partner's capital account
will be adjusted, as described above, for subsequent allocations of income,
deductions and distributions.

27
<PAGE> 28

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS

The Unaudited Combined Pro Forma Financial Statements reflect the
consummation of the Transactions by the Partnership, on a combined basis, as
more fully described in the accompanying notes. The Unaudited Combined Pro Forma
Statements of Income assume the Transactions occurred as of January 1, 1995. The
Unaudited Combined Pro Forma Balance Sheet assumes the Transactions occurred on
June 30, 1996. The Riverwood Acquisition will be accounted for as a purchase in
accordance with the provisions of Accounting Principles Board Opinion No. 16,
"Business Combinations."

The pro forma adjustments are based upon currently available information
and certain estimates and assumptions, and therefore the actual adjustments may
differ from the pro forma adjustments. However, the Partnership believes that
the assumptions provide a reasonable basis for presenting the significant
effects of the Transactions as contemplated and that the pro forma adjustments
give appropriate effect to those assumptions and are properly applied to the
unaudited combined pro forma financial statements.

The unaudited combined pro forma financial statements should be read in
conjunction with the information set forth in "The Transactions" and in the
financial statements and the notes thereto appearing elsewhere in this
Prospectus or incorporated by reference herein. The pro forma results of
operations are not necessarily indicative of results that would have occurred or
of the future results of operations.

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
PLUM CREEK
PLUM CREEK DIVISION PRO FORMA COMBINED
HISTORICAL(A) HISTORICAL(B) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................. $ 585,074 $159,749 $ (67,803)(c) $ 688,766
9,377(d)
2,369(e)
----------- -------- ---------- -----------
Costs and expenses:
Cost of goods sold...................... 388,450 109,195 (52,458)(c) 462,473
9,377(d)
7,519(f)
390(g)
Selling, general and administrative..... 37,648 3,340 (788)(c) 40,191
(9)(h)
----------- -------- ---------- -----------
Total costs and expenses............. 426,098 112,535 (35,969) 502,664
----------- -------- ---------- -----------
Operating income.......................... 158,976 47,214 (20,088) 186,102
Interest expense.......................... (46,836) (18,347)(i) (65,183)
Interest income........................... 1,073 1,073
Other income (expense) -- net............. (1,910) 2,369 (2,369)(e) (1,910)
----------- -------- ---------- -----------
Income before income taxes................ 111,303 49,583 (40,804) 120,082
Provision for income taxes................ 572 572
----------- -------- ---------- -----------
Net income/Excess of revenues over costs
and expenses............................ $ 110,731 $ 49,583 $ (40,804) $ 119,510
General Partner interest.................. 22,487 2,722(j) 25,209
----------- -------- ---------- -----------
Net income allocable to
Unitholders/Riverwood International..... $ 88,244 $ 49,583 $ (43,526)(j) $ 94,301
=========== ======== ========== ===========
Net income per Unit(j).................... $ 2.17 $ 2.06
=========== ===========
Average Units outstanding................. 40,608,300 5,100,000(k) 45,708,300
=========== ========== ===========
</TABLE>

See Accompanying Notes to Unaudited Combined Pro Forma Financial Statements

28
<PAGE> 29

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
PLUM CREEK
PLUM CREEK DIVISION PRO FORMA COMBINED
HISTORICAL(A) HISTORICAL(B) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues......................................... $ 283,466 $83,902 $ (29,142)(c) $ 343,862
4,770(d)
866(e)
---------- ------- --------- ----------
Costs and expenses:
Cost of goods sold............................. 187,912 52,598 (24,245)(c) 225,102
4,770(d)
3,917(f)
150(g)
Selling, general and administrative............ 17,941 2,371 (408)(c) 19,352
(552)(h)
---------- ------- --------- ----------
Total costs and expenses..................... 205,853 54,969 (16,368) 244,454
---------- ------- --------- ----------
Operating income................................. 77,613 28,933 (7,138) 99,408
Interest expense................................. (23,754) (9,410)(i) (33,164)
Interest income.................................. 621 621
Other income (expense) -- net.................... (984) 866 (866)(e) (984)
---------- ------- --------- ----------
Income before income taxes....................... 53,496 29,799 (17,414) 65,881
Provision for income taxes....................... 570 570
---------- ------- --------- ----------
Net income/Excess of revenues over costs and
expenses....................................... $ 52,926 $29,799 $ (17,414) $ 65,311
General Partner interest......................... 10,531 1,438(j) 11,969
---------- ------- --------- ----------
Net income allocable to Unitholders/Riverwood
International.................................. $ 42,395 $29,799 $ (18,852)(j) $ 53,342
========== ======= ========= ==========
Net income per Unit(j)........................... $ 1.04 $ 1.17
========== ==========
Average Units outstanding........................ 40,608,300 5,100,000(k) 45,708,300
========== ========= ==========
</TABLE>

See Accompanying Notes to Unaudited Combined Pro Forma Financial Statements

29
<PAGE> 30

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
DIVISION HISTORICAL(B)
------------------------------
THREE MONTHS
ENDED THREE MONTHS PLUM CREEK
PLUM CREEK MARCH 27, 1996 ENDED PRO FORMA COMBINED
HISTORICAL(A) (PREDECESSOR) JUNE 29, 1996 ADJUSTMENTS PRO FORMA
------------- -------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 266,438 $ 37,336 $36,162 $ (31,810)(c) $ 316,008
7,491 (d)
391 (e)
---------- -------- ------- --------- ----------
Costs and expenses:
Cost of goods sold.................. 190,903 22,903 24,311 (25,542)(c) 223,330
7,491 (d)
2,940 (f)
324 (g)
Selling, general and
administrative.................... 15,387 579 475 (325)(c) 16,283
167 (h)
---------- -------- ------- --------- ----------
Total costs and expenses.......... 206,290 23,482 24,786 (14,945) 239,613
---------- -------- ------- --------- ----------
Operating income...................... 60,148 13,854 11,376 (8,983) 76,395
Interest expense...................... (23,061) (6,886) (1,522)(i) (31,469)
Interest income....................... 331 331
Other income (expense) -- net......... (83) 14 377 (391)(e) (83)
---------- -------- ------- --------- ----------
Income before income taxes............ 37,335 13,868 4,867 (10,896) 45,174
Provision for income taxes............ 443 443
---------- -------- ------- --------- ----------
Net income/Excess of revenues over
costs and expenses.................. $ 36,892 $ 13,868 $ 4,867 $ (10,896) $ 44,731
General Partner interest.............. 11,537 1,514 (j) 13,051
---------- -------- ------- --------- ----------
Net income allocable to Unitholders/
Riverwood International............. $ 25,355 $ 13,868 $ 4,867 $ (12,410)(j) $ 31,680
========== ======== ======= ========= ==========
Net income per Unit(j)................ $ 0.62 $ 0.69
========== ==========
Average Units outstanding............. 40,608,300 5,100,000 (k) 45,708,300
========== ========= ==========
</TABLE>

See Accompanying Notes to Unaudited Combined Pro Forma Financial Statements

30
<PAGE> 31

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PLUM CREEK
PLUM CREEK DIVISION PRO FORMA COMBINED
HISTORICAL(A) HISTORICAL(B) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 61,849 $ 150,601(l) $ 59,717
128,766(k)
278,265(m)
(2,132)(m)
(557,632)(n)
Accounts receivable................... 38,442 $ 6,554 (6,554)(o) 38,442
Inventories........................... 44,946 7,718 (7,477)(l) 45,187
Timber contract deposits.............. 1,646 7,264 8,910
Other current assets.................. 7,809 (625)(l) 7,184
-------- -------- --------- ----------
154,692 21,536 (16,788) 159,440
Timber and timberlands -- net........... 454,449 489,028 (18,553)(l) 947,849
22,925(n)
Property, plant and equipment -- net.... 162,996 40,713 (18,899)(l) 177,494
(7,316)(n)
Other assets............................ 17,176 2,132(m) 19,308
-------- -------- --------- ----------
Total assets.................. $789,313 $551,277 $ (36,499) $1,304,091
======== ======== ========= ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt..... $ 17,400 $ 17,400
Accounts payable...................... 12,361 $ 1,014 $ (1,014)(o) 12,361
Interest payable...................... 7,313 6,886 (6,886)(o) 7,313
Wages payable......................... 6,897 1,233 1,000(n) 7,897
(1,233)(o)
Taxes payable......................... 5,827 5,827
Workers' compensation liabilities..... 2,014 2,014
Other current liabilities............. 7,465 1,743 272(1) 7,737
(1,743)(o)
-------- -------- --------- ----------
59,277 10,876 (9,604) 60,549
Long-term debt.......................... 402,400 275,000 (275,000)(o) 402,400
Lines of credit......................... 97,500 278,265(m) 375,765
Workers' compensation liabilities....... 8,685 8,685
Other liabilities....................... 2,545 238 1,700(n) 4,245
(238)(o)
-------- -------- --------- ----------
Total liabilities............. 570,407 286,114 (4,877) 851,644
-------- -------- --------- ----------
Commitments and contingencies
CAPITAL
Riverwood International's net
investment............................ 265,163 (265,163)(o)
Limited Partners' Units................. 219,676 128,766(k) 451,121
102,679(l)
General Partner......................... (770) 2,096(l) 1,326
-------- -------- --------- ----------
Total capital...................... 218,906 265,163 (31,622) 452,447
-------- -------- --------- ----------
Total liabilities and
capital..................... $789,313 $551,277 $ (36,499) $1,304,091
======== ======== ========= ==========
</TABLE>

See Accompanying Notes to Unaudited Combined Pro Forma Financial Statements

31
<PAGE> 32

PLUM CREEK TIMBER COMPANY, L.P.

UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS

(a) See Notes to Combined Financial Statements for the basis of presentation of
the Plum Creek Historical Financial Statements.

(b) See Notes to Financial Statements for the basis of presentation of the
Riverwood U.S. Timberlands/ Wood Products Division (the "Division")
Historical Financial Statements. For income statement purposes herein,
research, development and engineering costs have been grouped with selling,
general and administrative expenses. For balance sheet purposes herein,
prepaid expenses have been reclassified as timber contract deposits in the
historical financial statements column.

(c) Elimination of the historical operating results for the Newport Timberlands
and the Arden Sawmill reflecting the disposition of the these assets
pursuant to the Newport Asset Sale. Depreciation, depletion and
amortization of approximately $4.0 million, $1.9 million and $2.0 million
for the year ended December 31, 1995 and the six months ended June 30, 1995
and 1996, respectively, is included in the cost of goods sold elimination.
Capital expenditures for the year ended December 31, 1995 and the six
months ended June 30, 1995 and 1996 related to the Newport Assets were
approximately $1.7 million, $1.0 million and $1.5 million, respectively.

(d) Reclassification of certain items from cost of sales to revenues for
consistency with Plum Creek's accounting policies.

(e) Reclassification of other income to revenues for consistency with Plum
Creek's accounting policies.

(f) As a result of the Riverwood Acquisition, the Partnership will record a
step-up in the basis of the assets acquired to reflect the purchase price.
The following reflects the resulting increase in depreciation, depletion
and amortization:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
----------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Elimination of historical
depreciation, depletion and
amortization.................. $(7,110) $ (3,811) $ (4,472)
New depreciation, depletion and
amortization expense related
to Riverwood Assets acquired
by the Partnership............ 14,629 7,728 7,412
------- ------- -------
Net Adjustment........ $ 7,519 $ 3,917 $ 2,940
======= ======= =======
</TABLE>

Depletion (cost of timber harvested) is determined based on the volume of
timber harvested in relation to the total amount of estimated recoverable
timber, taking into effect the basis of the new assets. The cost of logging
roads is amortized over the estimated useful life on a straight-line basis.
Depreciation is provided for on a straight-line basis for buildings and on
a unit-of-production basis for machinery and equipment.

(g) Reflects an assumed increase in cost of goods sold related to pension
expense, retiree medical expense and employee benefits (to include amounts
consistent with Plum Creek's benefit plans).

(h) Reflects the assumed increase in certain general and administrative
expenses for items that were not historically allocated to the Division or
that are expected to increase because of Plum Creek's operation of the
Division, including additional computer system costs, travel, professional
fees and rent expenses. In addition, the adjustment reflects the
elimination of stock-based incentive compensation incurred by the Division
that the Partnership has determined will not be recurring after the
Riverwood Acquisition. The adjustment reflects the net change resulting
from the above items. The Partnership does not expect to incur material
integration costs or non-recurring charges or credits related to the
Riverwood Acquisition.

32
<PAGE> 33

(i) Reflects additional interest expense (including amortization of related
deferred financing fees) related to the New Line of Credit, net of the
elimination of the Division's historical interest expense, assuming an
outstanding balance of $375.8 million on the New Line of Credit at annual
interest rates of 6.44%, 6.61%, and 5.89% for the year ended December 31,
1995 and the six months ended June 30, 1995 and 1996, respectively. A
0.25% change in the interest rate would have an annual impact of $0.9
million on net income. The Partnership anticipates that a portion of the
outstanding borrowings under the New Line of Credit will be reduced with
the proceeds from the New Notes, if issued. The impact of such issuance of
long-term notes bearing interest at an assumed annual rate of 8% would be
an increase in interest expense for every $50 million of borrowings so
refinanced of $0.8 million, $0.3 million and $0.5 million for the year
ended December 31, 1995 and the six months ended June 30, 1995 and 1996,
respectively. The New Line of Credit will replace the Existing Lines of
Credit.

(j) Net income per Unit assumes 45,708,300 Units outstanding for the pro forma
periods. Net income attributable to Unitholders represents pro forma net
income less the General Partner interest, which is based on 2% of the
Partnership's combined net income (adjusted for the incentive
distribution), plus the incentive distribution, as provided for in the
Partnership Agreement. For purposes of calculating the incentive
distribution, per Unit distributions for the additional 5,100,000 Units
were assumed to equal historical per Unit distributions.

(k) Reflects the issuance of 5,100,000 Units, as described elsewhere in this
Prospectus, by the Partnership at an offering price of $26 3/4 per Unit
for net proceeds of $128.8 million (after deducting underwriting discount
and estimated offering expenses).

(l) Reflects the receipt of the net proceeds, the elimination of the assets
sold and the estimated net gain for financial statement purposes related
to the Newport Asset Sale. The estimated net proceeds include $143.7
million for the Newport Timberlands and the Arden Mill plus $8.7 million
for working capital (the June 30, 1996 balances were used for pro forma
purposes), net of estimated costs associated with the sale of $1.8
million.

(m) Reflects the New Line of Credit and the payment of the related debt
issuance costs (from existing cash balances), net of retirement of the
Existing Lines of Credit.

(n) Reflects purchase of the Riverwood Assets and the allocation of the total
purchase price of $560.3 million, based on currently available information
and certain estimates and assumptions, as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Elimination of historical cost of the Division's timber and
timberlands, net of accumulated depletion and amortization........... $(489,028)
Purchase of Southern Timberlands....................................... 511,953
---------
Net adjustment............................................... $ 22,925
=========
Elimination of historical cost of the Division's property, plant and
equipment, net of accumulated depreciation........................... $ (40,713)
Purchase of the Southern Region property, plant and equipment.......... 33,397
---------
Net adjustment............................................... $ (7,316)
=========
</TABLE>

The purchase price of $560.3 million consists of $555.0 million paid to the
seller for the Riverwood Assets, including certain working capital items
(estimates herein reflect the June 30, 1996 balances; such amounts will be
based on the balances at closing), the assumption of $2.7 million in
liabilities of

33
<PAGE> 34

the seller related to certain employee benefits and $2.6 million in
estimated acquisition expenses. Funding of the purchase price includes the
following:

<TABLE>
<S> <C>
Proceeds from borrowings under New Line of Credit...................... $278,265
Net proceeds from Newport Asset Sale................................... 150,601
Net proceeds from issuance of 5,100,000 Units.......................... 128,766
Assumed liabilities.................................................... 2,700
--------
Total purchase price......................................... $560,332
========
</TABLE>

The purchase price allocation, by categories of assets acquired and
obligations assumed, is as follows (the allocation is based on preliminary
estimates made by management of the fair value of assets acquired and
liabilities assumed, which are subject to refinement as additional
information becomes available):

<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Assets acquired:
Inventories.......................................................... $ 7,718
Timber contract deposits............................................. 7,264
--------
Total current assets......................................... 14,982
--------
Timber and timberlands:
Land.............................................................. 56,275
Timber............................................................ 450,578
Roads............................................................. 5,100
--------
Total timber and timberlands................................. 511,953
--------
Property, plant and equipment........................................ 33,397
--------
Total assets................................................. $560,332
========
Liabilities assumed:
Current liabilities.................................................. $ 1,000
Other liabilities.................................................... 1,700
--------
Total liabilities............................................ $ 2,700
========
</TABLE>

(o) Reflects the elimination of assets and liabilities that are included in the
historical Division financial statements that were not assumed by the
Partnership, consisting of receivables, certain liabilities, long-term debt
and Riverwood International's net investment.

34
<PAGE> 35

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table sets forth for the periods and at the dates indicated,
selected combined historical financial and operating data for the Partnership.
The selected combined historical financial data for each of the five years in
the period ended December 31, 1995 are derived from the combined historical
audited financial statements of the Partnership and should be read in
conjunction with the financial statements included elsewhere in this Prospectus
or incorporated herein by reference. The related combined historical financial
data for the six-month periods ended June 30, 1995 and 1996 are derived from the
historical unaudited combined financial statements of the Partnership included
elsewhere in this Prospectus or incorporated herein by reference, which in the
opinion of management include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the respective
unaudited interim periods. Interim results may not be indicative of results
which may be expected for any other interim period or for the year as a whole.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------- -------------------
1991(1) 1992(1)(2) 1993(1)(3) 1994 1995 1995(1) 1996
-------- ---------- ---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................ $389,785 $439,904 $501,006 $578,657 $585,074 $283,466 $266,438
Operating income........................ 55,660 97,782 126,557 164,134 158,976 77,613 60,148
Interest expense........................ (36,156) (35,749) (36,737) (47,410) (46,836) (23,754) (23,061)
Interest income......................... 2,534 2,870 2,203 889 1,073 621 331
Other expense--net...................... (2,885) (602) (474) (4,477) (1,910) (984) (83)
-------- ---------- ---------- -------- -------- -------- --------
Income before income taxes.............. 19,153 64,301 91,549 113,136 111,303 53,496 37,335
Provision for income taxes.............. 424 80 105 924 572 570 443
-------- ---------- ---------- -------- -------- -------- --------
Net income.............................. 18,729 64,221 91,444 112,212 110,731 52,926 36,892
General Partner interest................ 2,527 4,760 8,837 16,325 22,487 10,531 11,537
-------- ---------- ---------- -------- -------- -------- --------
Net income allocable to Unitholders..... $ 16,202 $ 59,461 $ 82,607 $ 95,887 $ 88,244 $ 42,395 $ 25,355
======== ========== ========== ======== ======== ======== ========
Net income per Unit(4).................. $ 0.37 $ 1.34 $ 1.92 $ 2.36 $ 2.17 $ 1.04 $ 0.62
Cash distributions declared per
Unit(4)............................... 1.07 1.17 1.38 1.67 1.96 0.98 1.00
Percentage of declared distributions
Unitholders........................... 93.3% 90.0% 84.5% 79.8% 76.7% 76.7% 76.4%
General Partner....................... 6.7% 10.0% 15.5% 20.2% 23.3% 23.3% 23.6%
CASH FLOW AND OTHER DATA:
EBITDA(5)............................... $ 98,301 $139,058 $167,092 $214,689 $212,236 $102,942 $ 86,762
Depletion, depreciation and
amortization.......................... 42,992 39,008 38,806 54,143 54,097 25,692 26,366
Capital Expenditures.................... 11,398 25,615 29,264(6) 25,837 30,683 14,004 10,273
Repayment of long-term debt, net........ -- 6,500 8,600(6) 25,501 13,000 13,000 14,100
BALANCE SHEET DATA (AT PERIOD END):
Working capital......................... $ 73,114 $ 99,724 $ 51,016 $ 90,511 $111,541 $ 94,433 $ 95,415
Total assets............................ 581,483 587,040 818,754 826,220 826,086 813,804 789,313
Total debt.............................. 325,000 318,500 569,900 544,400 531,400 531,400 517,300
Total partners' capital................. 211,652 225,293 192,555 222,977 233,868 227,917 218,906
OPERATING DATA:
Fee timber harvested (MMBF)............. 563 469 458 559 562 232 247
Non-fee timber harvested (MMBF)......... 76 117 77 71 116 47 62
Lumber production (MMBF)................ 409 395 352 388 433 216 223
Plywood production (MMSF) (3/8()
basis)................................ 279 294 289 290 294 150 149
MDF production (MMSF) (3/4() basis)..... 103 109 106 123 102 56 54
</TABLE>

35
<PAGE> 36

(footnotes from previous page)

(1) Certain reclassifications have been made for comparability purposes and have
no impact on net income.

(2) Included in 1992 results of operations was the sale of 164,000 acres of
timberland, together with a related sawmill, resulting in a net gain of
$15.6 million.

(3) During 1993, the Partnership elected to change its method for valuing
inventories from average cost to the LIFO method. This change in accounting
lowered 1993 earnings by $8.0 million or $0.18 per Unit. The cumulative
effect of the accounting change and pro forma effects on prior years'
earnings have not been included because such effects are not reasonably
determinable. In addition, on August 30, 1993, the Partnership redeemed 100%
of the DPIs for $63.0 million. Results subsequent to 1993 include the impact
of the Montana Timberland Acquisition, which was effected in November 1993.

(4) Prior period per Unit amounts have been restated for the December 6, 1993
three-for-one Unit split.

(5) EBITDA is provided because management believes EBITDA provides useful
information for evaluating the Partnership's ability to make cash
distributions. EBITDA should not be construed as an alternative to operating
income (as an indicator of the Partnership's operating performance) or as an
alternative to cash flows from operating activities (as a measure of
liquidity).

(6) Excludes $255.3 million of capital expenditures and $260.0 million of
long-term debt borrowings related to the Montana Timberland Acquisition.

36
<PAGE> 37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion addresses the combined historical results of
operations of the Partnership. This discussion should be read in conjunction
with the "Selected Historical Financial and Operating Data," the "Unaudited
Combined Pro Forma Financial Statements" and the combined historical financial
statements appearing elsewhere in this Prospectus or incorporated herein by
reference. The results of operations for the six-month period ended June 30,
1996 are not necessarily indicative of the results to be expected for any other
interim period or for the entire year as a whole.

For the periods covered by the Partnership's most recent interim financial
statements, the Partnership and its subsidiaries owned and managed approximately
2.0 million acres of timberland comprising the Northwest Timberlands and 10 wood
products conversion facilities in Montana, Washington and Idaho. In October
1996, the Partnership (i) acquired approximately 529,000 acres (and
approximately 9,000 leased acres) of timberland comprising the Southern
Timberlands and three wood products facilities comprising the Southern
Facilities, and (ii) sold approximately 107,000 acres comprising the Newport
Timberlands and the related Arden Sawmill.

As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ all of the persons responsible for managing
the Partnership's operations, but instead reimburses the General Partner for the
services of such persons. The General Partner and Corp. I or their affiliates,
as the case may be, are entitled to be reimbursed by the Partnership for direct
and indirect general and administrative costs incurred by them for or on behalf
of the Partnership. These general and administrative costs were approximately
$5.6 million in 1995.

The Partnership owns a 98% limited partner interest in Manufacturing and
96% of the capital stock of Marketing. The General Partner manages the
businesses of the Partnership, Manufacturing and Marketing and owns the
remaining 2% and 4% interests in Manufacturing and Marketing, respectively. See
"Conflicts of Interest." As used herein, "Resources Segment" refers to the
combined timber and land management business of the Partnership. "Manufacturing
Segment" refers to the combined business of Manufacturing and Marketing.

The Partnership's principal operations consist of the growing and
harvesting of timber, the sale of logs and the processing and sale of lumber,
plywood, MDF and wood chips. See "Business and Properties -- Overview." Results
of operations are affected by various factors, which include among others (i)
general industry conditions, (ii) domestic and international prices and supply
and demand for logs, lumber and other wood products, (iii) seasonality and (iv)
competition from other supplying regions and substitute products. Domestic
demand for lumber and manufactured wood products is primarily affected by the
level of new residential construction activity. In addition to housing starts,
demand for wood products is also significantly affected by repair and remodeling
activities and industrial uses, demand for which has historically been less
cyclical. These fluctuations are reflected in changes in prices for logs,
lumber, plywood, MDF and other manufactured wood products.

Industry Supply and Demand. The supply of logs available for purchase has
been most affected in recent years by significant reductions in timber
harvesting from United States federal lands, which resulted in upward pressure
on prices for logs, lumber and plywood and resulted in a number of sawmill and
plywood facility closings in the Pacific Northwest. Since 1988, environmental
and other similar concerns and governmental policies have substantially reduced
the volume of timber under contract to be harvested from federal lands. Federal
timber under contract in the Pacific Northwest decreased 86% from approximately
13.1 BBF in the fourth quarter of 1987 to approximately 1.8 BBF in the fourth
quarter of 1995. The resulting supply decrease caused prices for logs and lumber
to increase significantly, reaching peak levels during late 1993 and early 1994.
While prices have declined somewhat from these historical peak levels, current
prices still significantly exceed the prices that prevailed prior to such
reduction in supply. The low supply of timber

37
<PAGE> 38

from federal lands, which is expected to continue for the foreseeable future,
has benefited forest products companies with private timber holdings such as the
Partnership.

Historically, Canada has been a significant source of lumber for the United
States market, particularly in the new home construction market. For example,
during the five-year period ended December 31, 1993, Canadian softwood lumber
imports into the United States represented approximately 29% of United States
softwood lumber consumption. This increased to approximately 34% in 1994 and to
an all-time high of approximately 36% in 1995. The increase in Canadian softwood
lumber imports has been due in part to the reduced production levels of United
States lumber manufacturers in the Pacific Northwest (resulting from the reduced
availability of timber from United States federal lands), and the large increase
during 1995 in the price of residual wood chips resulting from the strength of
the paper market. This price increase for residual chips caused Canadian lumber
producers to increase lumber production even though Canadian housing starts and
Asian lumber demand were relatively low during 1995. The combination of these
factors caused an increase in Canadian lumber imports into the United States in
1995, which contributed to a decline in United States lumber prices. In 1995,
the United States and Canadian governments announced a five-year lumber trade
agreement effective April 1, 1996. This agreement is intended to limit the
volume of Canadian lumber exported into the United States through the assessment
of an export tariff on annual lumber exports to the United States in excess of
certain levels from the four major producing provinces. The lumber trade
agreement has only recently been enacted and therefore its long-term effect is
uncertain. The agreement has the potential of increasing competition in foreign
markets as Canadian lumber producers look for new markets in which to sell their
products.

In addition to the price pressure associated with the influx of finished
lumber from Canada, plywood and MDF markets have been under pressure due to
significant capacity expansion. OSB is a wood product that is a low cost
substitute for commodity grade plywood. By 1998, OSB annual capacity is expected
to nearly double over 1994 levels, from 12 billion square feet ("BSF") to 22
BSF. Similar capacity expansion is occurring in the MDF market. In 1995, North
American annual capacity was 1.5 BSF, and is expected to grow to 2.6 BSF by the
year 2000. Increases in the supply of both OSB and MDF are expected to exceed
the rate of demand growth during most of this period.

The domestic demand for logs, lumber and manufactured wood products is
directly affected by the level of residential construction activity. Changes in
general demographic and economic factors, including interest rates for home
mortgages and construction loans, have historically caused fluctuations in
housing starts and, in turn, in demand (and therefore prices) for lumber and
commodity wood products. The market for repair and remodeling activities and
industrial uses (as opposed to new construction) is also affected, although in a
less cyclical manner, by changes in economic conditions. As a result of the
record prices in late 1993 and early 1994, distributors during 1995 shifted to
reduced inventory levels, maintaining only enough inventory to provide supplies
"just-in-time." The decrease in demand resulting from just-in-time buying was
another factor contributing to lower lumber prices in 1995. However, during the
first six months of 1996, lumber prices have rebounded due to stronger housing
starts and limited supply. This limited supply resulted from production
curtailments due to weak chip markets, the lumber trade agreement between the
United States and Canada and the inability of distributors to replenish
inventory as demand began to improve.

The Partnership is also affected by international market factors. Export
log revenues accounted for approximately 10% of the Partnership's total revenues
in 1995 and in the first six months of 1996 and represented approximately 21%
and 25%, respectively, of the Partnership's operating income in such periods.
All of the Partnership's export log sales in such periods originated from the
Cascades Region and were made to customers in Japan. As a result of declining
availability of export logs from the Pacific Northwest, Japan and other Asian
countries have increased their utilization of logs and wood products from other
global sources. The strength of the Japanese and other Asian economies, the
availability of substitute products and the relative strength of the U.S. dollar
affect the demand for exported logs from the Cascades Region. See "Risk
Factors--The Partnership's Ability to Sell Logs for Export May be Limited."

The demand for and prices of wood chips and pulp logs are affected by
fluctuations in the pulp and paper markets. In 1995, wood chip prices reached
record levels as a result of strong demand from paper mills.

38
<PAGE> 39

However, by the end of 1995, prices had fallen due to paper production
curtailments and an excess accumulation of wood chip inventories by paper mills.
As a result, the Partnership curtailed its in-woods chipping operations in the
first half of 1996. Such operations have resumed at reduced levels in the second
half of 1996, as wood chip inventory levels have begun to moderate.

Comparability of Financial Statement Periods. As a part of its business
strategy, the Partnership has pursued and will continue to pursue the
acquisition of additional timberlands to increase its inventory of fee timber.
On November 1, 1993, the Partnership purchased from Champion International
Corporation 865,000 acres of timberland intermingled with the Partnership's
existing holdings in western Montana. In addition, on October 18, 1996, the
Partnership acquired the Riverwood Assets. As an additional part of its business
strategy, the Partnership may, from time to time, sell timberlands and
facilities if attractive opportunities arise. As part of the Transactions, the
Partnership consummated the Newport Asset Sale on October 11, 1996. Accordingly,
the comparability of periods covered by the Partnership's financial statements
is, and in the future may be, affected by the impact of acquisitions and
divestitures.

Harvest Plans. The Partnership determines its harvesting plans based on a
number of factors, including age and size of, and species distribution within,
its timber acreage, economic maturity of each harvest area, environmental
considerations and mill requirements both in the Conversion Facilities and at
unaffiliated mills. The timing of harvest of merchantable timber depends in part
on growth cycles and in part on economic conditions. Harvest levels in the Rocky
Mountain Region after the 1993 Montana Timberland Acquisition have averaged
approximately 350 MMBF annually (excluding harvests on the Newport Timberlands).
These harvests are expected, on average, to remain relatively stable over the
next several years. By the year 2001, the Partnership anticipates that it will
have nearly completed the conversion of slower growing forests to younger, more
productive stands in the Rocky Mountain Region, at which time it anticipates a
moderate reduction in the region's harvest levels. Harvest levels in the
Cascades Region have averaged approximately 154 MMBF over the past three years
and are expected to approximate 150 MMBF in 1996. The Partnership expects its
harvest levels in the Cascades Region to decline gradually for the foreseeable
future as the conversion process in the region approaches completion.

Harvest levels in the Southern Timberlands approximated 540,000 Cunits in
1995. Harvest levels during the years 1997 to 2000 are expected to be moderately
higher than the 1995 levels as a result of the anticipated conversion of mature
second growth pine timberlands into intensively managed pine plantations.
Subsequent to the completion of the conversion process by approximately 2001,
harvest levels are expected to decline to levels that approximate those in 1995
and then gradually increase to above 1995 levels as the Partnership benefits
from the faster growing, intensively managed plantations.

Since harvest plans are influenced by projections of demand, price,
availability of timber from other sources and other factors that may be outside
of the Partnership's control, actual harvesting levels may vary. The Partnership
believes that its harvest plans are sufficiently flexible to permit modification
in response to short-term fluctuations in the markets for logs and lumber.

Seasonality. Domestic log sales volumes from the Northwest Timberlands are
typically at their lowest point in the second quarter of each year during spring
breakup, when warming weather thaws and softens roadbeds, restricting access to
logging sites. Log sales volumes from the Southern Timberlands are generally at
their lowest point during the first quarter of each year, as winter rains limit
operations in some areas. Export log sales are affected in part by variations in
inventory, both domestically and in the countries where such logs are sold, as
well as by weather conditions. Winter logging activity in the Pacific Northwest
takes place at lower elevations, where predominantly second growth logs are
found, reducing the volume of higher quality export logs sold during this time
of the year.

Demand for manufactured products is generally lower in the fall and winter
quarters when activity in the construction markets is slower, and higher in the
spring and summer quarters when these markets are more active. In addition to
seasonal fluctuations in demand, prices of manufactured products can be impacted
by weather-related, seasonal fluctuations in supply, as production can be
hampered during severely cold winter months and then rebound when warmer spring
weather arrives. The Partnership's focus on repair and remodeling markets tends
to reduce the seasonal fluctuations experienced in traditional housing-related

39
<PAGE> 40

markets. Log inventories at the Northwest Facilities increase during the winter
months to prepare for reduced harvest during spring breakup. Working capital
varies with seasonal fluctuations.

RESULTS OF OPERATIONS

The following table compares operating income by segment for the years
ended December 31, 1993, 1994 and 1995 and for the six month periods ended June
30, 1995 and 1996.

<TABLE>
<CAPTION>
OPERATING INCOME BY SEGMENT

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Resources......................... $135,238 $150,730 $139,192 $ 55,985 $ 54,881
Manufacturing..................... 11,471 32,175 35,567 15,135 6,450
Other & Eliminations.............. (20,152) (18,771) (15,783) 6,493 (1,183)
-------- -------- -------- -------- --------
Total................... $126,557 $164,134 $158,976 $ 77,613 $ 60,148
======== ======== ======== ======== ========
</TABLE>

SIX-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30,
1995

Resources Segment revenues decreased by $0.7 million, or 0.5%, to $134.2
million for the six months ended June 30, 1996, as compared to $134.9 million
for the six months ended June 30, 1995. Such decrease was primarily due to lower
export and domestic sawlog sales prices and a $2.2 million decrease in revenues
from pulpwood and chip sales, offset in part by increased domestic sales volumes
and a $1.4 million increase in land sales. Export prices realized by the
Partnership decreased by 13%, as compared to the first six months of 1995, due
primarily to a higher percentage of whitewoods in the sales mix and, to a lesser
extent, weaker Japanese demand primarily as a result of increased acceptance of
substitute products in the Japanese market. Domestic log sales prices decreased
by 7%, as compared to the first six months of 1995, due to the significant
decline in chip prices as a result of the abundant supply of chips and pulp
logs, and to a lesser extent, weaker plywood prices. Pulpwood and chip revenues
decreased 40%, as compared to the first six months of 1995, due to the weaker
paper markets and the oversupply of available wood fiber. Domestic log sales
volume increased 10%, as compared to the first six months of 1995, primarily due
to low log inventory levels as of December 31, 1995, as compared to December 31,
1994, as a result of unfavorable logging conditions during the fourth quarter of
1995.

Resources Segment costs and expenses increased by $0.3 million, or 0.4%, to
$79.3 million for the six months ended June 30, 1996, as compared to $79.0
million for the six months ended June 30, 1995. Such increase was primarily due
to the increase in domestic log sales volumes, offset in part by reduced
pulpwood and chip operations.

Manufacturing Segment revenues decreased by $11.9 million, or 6.2%, to
$178.8 million for the six months ended June 30, 1996, as compared to $190.7
million for the six months ended June 30, 1995. Such decrease was due to
decreases of 6% and 24% in sales prices for plywood and MDF, respectively, and
decreased residual chip revenues, as compared to the first six months of 1995.
The decrease in plywood prices was primarily a result of declining commodity
prices due to increased competition from OSB as a result of capacity expansion,
as well as from severe winter weather in the first quarter of 1996. MDF prices
decreased due to a weakening in demand which began in the second quarter of 1995
and continued through the first quarter of 1996, along with the impact of
significant 1996 capacity expansion within the industry. Residual chip prices
decreased by 19% over the first six months of 1995 due to excess chip
inventories throughout the entire industry, principally as a result of weakness
in the pulp and paper sector.

Manufacturing Segment costs and expenses decreased by $3.3 million, or
1.9%, to $172.3 million for the six months ended June 30, 1996, as compared to
$175.6 million for the six months ended June 30, 1995. Such decrease was
primarily due to a 7% decrease in lumber log costs as a result of lower domestic
log prices, offset

40
<PAGE> 41

in part by increases of 8% and 11% in plywood and MDF manufacturing costs,
respectively, as a result of manufacturing higher quality products, increased
maintenance costs at the plywood facilities for dryer repairs and reduced
production at the MDF facility. The decreased MDF production was required to
ensure that the Partnership maintained the superior quality of its new MDF2
while it experimented with modifications to its new high-energy refiner plates.
The start-up phase for MDF2 was completed in mid-1996.

Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $1.2 million in the first six months of 1996, as
compared to increasing operating income by $6.5 million in the first six months
of 1995. The variance is primarily due to the release of intercompany log profit
during the first quarter of 1995 as Manufacturing's log inventories were being
depleted, compared to the deferral of intercompany log profit during the first
quarter of 1996 as Manufacturing was building log inventories. Weather is the
primary factor influencing the Resource Segment's log production, which directly
impacts Manufacturing's intercompany log purchases. On a combined basis, the
Resource Segment's profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products and sells
them to third parties.

The income allocated to the General Partner was $1.0 million higher in the
six months ended June 30, 1996, as compared to the year earlier period. The
increase was the result of a higher quarterly distribution to Unitholders, which
increased the incentive distribution paid to the General Partner, offset in part
by lower net income. Net income is allocated to the General Partner based on 2%
of the Partnership's net income (adjusted for the incentive distribution), plus
the incentive distribution. The incentive distribution is based on a percentage
of the quarterly distribution paid each quarter, which was $0.98 per Unit in the
aggregate in the first two quarters of 1996, as compared to $0.92 per Unit in
the aggregate during the first two quarters of 1995.

1995 COMPARED TO 1994

Resources Segment revenues increased by $2.6 million, or 0.8%, to $327.0
million in 1995, as compared to $324.4 million in 1994. Such increase was
primarily due to a $21.7 million increase in revenues from pulpwood and chip
sales offset in part by lower export log sales volume and lower domestic log
prices. The increase in pulpwood and chip revenues was due to the addition in
1995 of in-woods chipping operations, which utilize small tops of trees and
small trees from thinning operations, and a significant increase in pulp log
prices and sales volume as compared to 1994 due to strong pulp and paper
markets. Export log sales volume decreased by 18% as compared to 1994 due to the
shifting of lower quality export logs to the domestic market as a result of a
weaker Japanese economy and a planned reduction in harvest levels in 1995.
Domestic log prices decreased by 8% as compared to 1994. The decrease was
attributable entirely to the Rocky Mountain Region and was primarily due to weak
lumber markets and aggressive competition from Canadian lumber producers.

Resources Segment costs and expenses increased by $14.1 million, or 8.1%,
to $187.8 million in 1995 as compared to $173.7 million in 1994. Such increase
was primarily due to the costs relating to higher volumes of pulpwood and chip
sales.

Manufacturing Segment revenues increased by $3.5 million, or 0.9%, to
$375.7 million in 1995 as compared to $372.2 million in 1994. Such increase was
primarily due to an increase in lumber sales volume and a 60% increase in
revenues from residual chip sales, offset in part by lower lumber prices and
lower MDF sales volume. Lumber sales volume increased by 8% as compared to 1994
due to increased production as a result of the Partnership's new lumber
remanufacturing facility, higher productivity due to improved log merchandising
specifications and capital improvements, and additional production shifts.
Lumber prices decreased by 13% as compared to 1994 due to a weaker housing
market as a result of generally slower economic conditions, and increased
competition from both Canadian imports and substitute products. While the
Partnership's lumber prices are influenced by commodity prices, it is able to
maintain sales volume due to its high concentration of sales in the repair and
remodel and industrial markets, which are less affected by the slow housing
market. MDF sales volume decreased by 15% as compared to 1994 as a result of
production downtime associated with weak market conditions and operational
issues encountered during the start-up of

41
<PAGE> 42

new high-energy refiners for the Partnership's new MDF2 product. Residual chip
revenues increased due to a substantial increase in prices over 1994 due to
strong pulp and paper markets.

Manufacturing Segment costs and expenses were $340.1 million for each of
the years ended 1995 and 1994. Increased costs due to increased lumber sales
volumes were offset by lower log costs (14% and 4% lower for lumber and plywood,
respectively) and lower MDF production costs as a result of downtime.

Other Costs and Eliminations reduced operating income by $15.8 million in
1995 as compared to reducing income by $18.8 million in 1994. The variance was
primarily due to lower intercompany profit elimination, offset in part by an
increase in the intercompany LIFO elimination. On a combined basis, the
Resources Segment's profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products and sells
them to third parties. The 1995 intercompany profit elimination was lower than
the prior year's due to a decrease in log inventory levels, and a lower log
transfer price as a result of a weaker domestic log market. On a combined basis,
the LIFO impact related to price fluctuations on the sale of intercompany logs
is eliminated. The 1995 intercompany LIFO elimination was greater than the prior
year's due to a lower log transfer price, which resulted in a greater decrement
in Manufacturing's separate company LIFO reserve as compared to the combined
LIFO reserve.

Other expense-net decreased by $2.6 million, or 57.8%, to $1.9 million in
1995 as compared to $4.5 million in 1994 primarily due to a decrease in fixed
asset retirements, a charge in 1994 for the write-off of capitalized debt issue
costs as a result of refinancing the lines of credit, and a decrease in the
expense for state taxes payable on behalf of non-resident Unitholders.

The income allocated to the General Partner increased by $6.2 million
during 1995 compared to 1994 as a result of higher quarterly distributions to
the Unitholders which increased the incentive distribution paid to the General
Partner. Net income is allocated to the General Partner based on 2% of the
Partnership's net income (adjusted for the incentive distribution paid), plus
the incentive distribution. The incentive distribution is based on a percentage
of the quarterly distribution paid which totaled $1.90 per Unit for the year
ended 1995, as compared to $1.62 per Unit in 1994.

1994 COMPARED TO 1993

Resources Segment revenues increased by $58.3 million, or 21.9%, to $324.4
million in 1994 as compared to $266.1 million in 1993. Such increase was
primarily due to increased sales volumes and higher prices for domestic logs,
offset in part by lower export log sales volumes and lower land sales. Domestic
log sales volume increased by 24% as compared to 1993 primarily due to increased
harvest levels. The Partnership's 1994 fee timber harvest was 559 MMBF which was
101 MMBF higher than 1993, primarily as a result of the Montana Timberland
Acquisition. Domestic log prices increased by 8% as compared to 1993. The higher
prices were primarily the result of increased demand for wood products as well
as from log shortages in the Pacific Northwest caused in part by legal
challenges to federal timber sales and changes in federal timber policy. In
addition, 1994 land sales were $6.4 million lower than 1993. Land sales declined
in 1994, primarily due to the Partnership's strategy of deferring land sales
until the completion of state and county growth management processes.

Resources Segment costs and expenses increased by $42.8 million, or 32.7%,
to $173.7 million in 1994 as compared to $130.9 million in 1993. Such increase
was primarily due to the increase in the production volumes of domestic logs,
higher log and haul costs resulting from longer hauling distances and higher
road amortization and timber depletion rates resulting from the additional roads
and timber obtained in the Montana Timberland Acquisition.

Manufacturing Segment revenues increased by $47.6 million, or 14.7%, to
$372.2 million in 1994 as compared to $324.6 million in 1993. Such increase was
due to sales volume increases and higher prices in all product lines. Lumber,
plywood and MDF prices increased by 7%, 7% and 22%, respectively, as compared to
1993. The higher prices were the result of improved domestic wood product demand
and the impact of the log supply shortage. Lumber sales volumes were 7% higher
as compared to 1993, primarily due to increased

42
<PAGE> 43

production. MDF sales volumes were 15% higher as compared to 1993, due to
increased production as a result of capital improvements.

Manufacturing Segment costs and expenses increased by $27.0 million, or
8.6%, to $340.1 million in 1994 as compared to $313.1 million in 1993. Such
increase was primarily due to increased lumber and MDF production volumes and
higher log costs (14% and 15% higher for lumber and plywood, respectively) which
were the result of improving demand for finished wood products and the log
supply shortage.

Other Costs and Eliminations decreased by $1.4 million in 1994 as compared
to 1993, primarily due to a decrease in the cost of employee benefit plans and a
decrease in executive incentive compensation paid by the Partnership. Profit
resulting from intercompany log sales is deferred until Manufacturing converts
existing log inventories into finished products and sells them to third parties.

Interest expense increased by $10.7 million, or 29.2%, to $47.4 million in
1994 as compared to $36.7 million in 1993 due to an increase in average debt
outstanding in 1994, as a result of borrowings in November 1993 to finance the
Montana Timberlands Acquisition. Other expense-net increased by $4 million to
$4.5 million in 1994 as compared to $0.5 million in 1993 primarily due to an
increase in the minority interest elimination as a result of an increase in net
income in the Manufacturing Segment, an increase in fixed asset retirements and
an increase in the expense for state taxes payable on behalf of non-resident
Unitholders.

The income allocated to the General Partner increased by $7.5 million
during 1994 compared to 1993 as a result of higher net income and higher
quarterly distributions to the Unitholders which increased the incentive
distribution paid to the General Partner. Net income is allocated to the General
Partner based on 2% of the Partnership's net income (adjusted for the incentive
distribution paid), plus the incentive distribution. The incentive distribution
is based on a percentage of the quarterly distribution paid which totaled $1.62
per Unit for the year ended 1994, compared to $1.30 per Unit in 1993 (1993 per
Unit amounts were restated for the December 6, 1993 three-for-one Unit split).

EXPORT SALES

The Partnership sells logs and finished wood products for export. These
sales are denominated in U.S. dollars and are generally sold to Pacific Rim
countries, principally Japan, and to Canada. Combined export revenues as a
percentage of total revenues were 17%, 15% and 13% for 1993, 1994 and 1995,
respectively, and 14% and 13% for the first six months of 1995 and 1996,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow. Net cash provided by operating activities in the first six
months of 1996 decreased by $38.3 million, or 45.1%, to $46.6 million compared
to $84.9 million in the 1995 period. Such decrease was primarily due to
unfavorable working capital changes of $23.3 million and lower net income of
$16.0 million, in the first six months of 1996. The unfavorable working capital
variance is primarily related to a $14.6 million fluctuation in inventory, which
principally related to logs, and a $4.1 million increase in accounts receivable,
which was due to increased activity during June 1996 as compared to June 1995.
During the first six months of 1996 log inventories decreased by 37% compared to
a 64% decrease during the year earlier period primarily due to significantly
higher log inventories at December 31, 1994 than at December 31, 1995, as a
result of unfavorable logging conditions during the fourth quarter of 1995. On
June 30, 1996, the Partnership had $61.8 million of cash and cash equivalents.

Net cash provided by operating activities was $115.3 million, $155.1
million and $165.2 million for 1993, 1994 and 1995, respectively. In 1994,
operating cash flow was reduced by $9.2 million, net of expense, for the funding
of certain employee benefit plans. There was no such funding in 1995. Future
funding of these benefit plans is contingent on meeting targets as defined in
the plans. For further discussion of these benefit plans, see Note 10 of Notes
to Combined Financial Statements.

The Partnership distributed $0.51 per Unit for the second quarter of 1996.
The distribution totaled $27.2 million (including $6.5 million to the General
Partner), and was paid on August 23, 1996 to Unitholders of record on August 16,
1996. The computation of cash available for distribution includes required
reserves for

43
<PAGE> 44

the payment of principal and interest, as well as other reserves established at
the discretion of the General Partner for working capital, capital expenditures
and future cash distributions.

Cash required to meet the Partnership's quarterly cash distributions,
capital expenditures and to satisfy interest and principal payments on the
Partnership's debt will be significant. The General Partner expects that all
debt service will be funded from cash generated by operations. The Partnership's
outstanding balances under its bank facilities fluctuate from time to time as
the Partnership adjusts its cash position in the ordinary course of business.
The Partnership expects to make cash distributions from current funds and cash
generated from operations.

The Partnership is involved in certain environmental and regulatory
proceedings and other related matters. Although it is possible that new
information or future developments could require the Partnership to reassess its
potential exposure related to these matters, the Partnership believes, based
upon available information, that the resolution of these issues will not have a
material adverse effect on its results of operations, financial position or
liquidity. See "Business and Properties -- Federal and State Regulations."

Capital Expenditures. Capital expenditures for the first six months of
1996 totaled $10.3 million compared to $14.0 million for the same period in
1995. Total 1996 capital expenditures in respect of the Northwest Timberlands
and the Northwest Facilities are expected to equal $20 million, compared to
$30.7 million expended in 1995. The principal projects in the 1996 plan include
upgrading the Pablo mill to process small logs more efficiently, the purchase
and installation of various lumber and plywood optimization projects,
replacement and equipment upgrades in the manufacturing facilities and road
construction and timberland reforestation.

Capital expenditures for the Resources Segment were $260.5 million, $7.1
million and $8.5 million for 1993, 1994 and 1995, respectively. Resources
Segment capital expenditures included the construction of logging roads and
reforestation. Resources Segment capital expenditures for 1993 included $255.3
million of timberlands purchased as part of the Montana Timberland Acquisition,
as well as construction of logging roads and reforestation. Capital expenditures
for the Manufacturing Segment were $24.1 million, $18.7 million and $22.2
million for 1993, 1994 and 1995, respectively. Manufacturing Segment capital
expenditures in 1995 included a project in the MDF plant to produce MDF2, a
higher quality MDF product that can be machined and finished more efficiently,
adding significant value to the MDF product line, air quality pollution control
equipment at the MDF plant, various lumber and plywood value-added projects and
equipment upgrades to meet environmental requirements.

In each of the next several years, the Partnership expects that its annual
maintenance capital expenditures related to the Northwest Timberlands and the
Northwest Facilities will range from $10-12 million, excluding acquisitions. The
Partnership generally funds its capital expenditures using cash from operations.
To fund the Montana Timberlands Acquisition, the Partnership also used the
proceeds of the issuance of $150 million aggregate principal amount of its
Senior Notes due 2009 (as defined below).

The Partnership does not anticipate making significant capital investments
in the Southern Facilities in the foreseeable future. The Partnership expects
its capital expenditures in respect of the Southern Timberlands and the Southern
Facilities to be approximately $8.0 million in 1997.

PARTNERSHIP INDEBTEDNESS

The Partnership has the following long-term indebtedness: (i) $138.6
million aggregate principal amount of 11.125% Senior Notes due 2007 (the "Senior
Notes due 2007"), (ii) $150 million aggregate principal amount of 8.73% Senior
Notes due 2009 (the "Senior Notes due 2009"), (iii) $131.2 million aggregate
principal amount of 11.125% First Mortgage Notes due 2007 (the "First Mortgage
Notes"), (iv) $322 million under the New Line of Credit, of which $78.8 million
will be repaid with the proceeds of this offering, and (v) $50 million under the
Bridge Facility, all of which will be repaid with the proceeds of this offering.
See "Use of Proceeds" and "Capitalization." On a pro forma basis as of June 30,
1996, after giving effect to the Transactions, the Partnership would have had
approximately $24 million of unused borrowing capacity under the New Line of
Credit and approximately $60 million of cash and cash equivalents. Subsequent to
the closing

44
<PAGE> 45

of this offering, the Partnership anticipates that it will issue approximately
$200 million aggregate principal amount of New Notes, the net proceeds of which,
if issued, would be used to repay a portion of the outstanding borrowings under
the New Line of Credit. Such repayment would not reduce the amount available to
be drawn thereunder.

SENIOR NOTES DUE 2007. The Senior Notes due 2007, issued in 1989, bear
interest at 11.125% per annum, have an original maturity of 18 years (with an
original average life of 12.2 years) and require principal repayments, which
escalate over time, beginning in 1992 and ending in 2007. The Senior Notes due
2007 are unsecured senior obligations of the Partnership, are nonrecourse to the
General Partner and are not subject to any cross-default in respect of
indebtedness of the General Partner.

The agreement governing the Senior Notes due 2007 contains certain
covenants which, subject to certain exceptions, limit the Partnership's ability
to incur or assume additional indebtedness, create certain liens on Partnership
property, make cash distributions in excess of Available Cash (less certain
reserves for principal and interest payments) or while an event of default
exists or would exist due to such distributions, merge or consolidate with any
other person or entity, purchase or own any securities of any person, make loans
or capital contributions to any person, sell all or substantially all of its
property, assets or business as an entirety or sell or dispose of Partnership
assets generally, among other things. In addition, the Partnership is required
to deposit the net cash proceeds from the harvest of currently owned fee timber
in excess of specified annual quantities into an escrow account for (i)
repayment of qualified debt or (ii) the purchase of additional timber or
timberlands.

SENIOR NOTES DUE 2009. The Senior Notes due 2009, issued in 1994, bear
interest at 8.73% per annum, have an original maturity of 15 years and are
payable in full in August 2009. The Senior Notes due 2009 are unsecured senior
obligations of the Partnership, are nonrecourse to the General Partner and are
not subject to any cross-default in respect of indebtedness of the General
Partner.

The agreement governing the Senior Notes due 2009 contains certain
covenants which, subject to certain exceptions, limit the Partnership's ability
to incur or assume additional indebtedness, create certain liens on Partnership
property, make cash distributions in excess of Available Cash (less certain
reserves for principal and interest payments) or while an event of default
exists or would exist due to such distributions, merge or consolidate with any
other person or entity, purchase or own any securities of any person, make loans
or capital contributions to any person, sell or dispose of all or substantially
all of its property, assets or business as an entirety or sell or dispose of
Partnership assets generally, among other things. In addition, the Partnership
is required to deposit the net cash proceeds from the harvest of currently owned
fee timber in excess of specified annual quantities into an escrow account for
(i) repayment of qualified debt or (ii) the purchase of additional timber or
timberlands.

FIRST MORTGAGE NOTES. The First Mortgage Notes, issued by Manufacturing in
1989, bear interest at 11.125% per annum and have an original maturity of 18
years (with an original average life of 11.8 years). The First Mortgage Notes
require principal payments, which escalate over time, beginning in 1992 and
ending in 2007. The First Mortgage Notes are secured by the current and certain
after-acquired property, plant and equipment of Manufacturing (including,
following the closing of the Transactions, the Southern Facilities, but
excluding inventory and accounts receivable) and are guaranteed by the
Partnership on a subordinated basis. The guarantee obligation of the Partnership
is nonrecourse to the General Partner.

The agreement governing the First Mortgage Notes contains certain covenants
which, subject to certain exceptions, limit Manufacturing's ability to incur or
assume additional indebtedness, create certain liens on Manufacturing's
property, make cash distributions to the Partnership and the General Partner in
excess of available cash (as defined in the agreement governing the First
Mortgage Notes), make cash distributions while a default exists or would exist
due to such distributions, purchase or own any securities of any person or make
loans or capital contributions to any person, merge or consolidate with any
other person or entity or sell Manufacturing's assets, among other things.

45
<PAGE> 46

NEW BANK FACILITIES

The Partnership has entered into the New Bank Facilities with the Bank,
which consist of a $400 million New Line of Credit and a $250 million Bridge
Facility. Borrowings under the New Bank Facilities are unsecured obligations of
the Partnership.

The New Line of Credit permits the Partnership to borrow up to $400 million
(including up to $20 million of standby letters of credit) to finance working
capital, capital expenditures (including acquisitions) and general partnership
expenses. The Bridge Facility was available to be drawn only in connection with
the consummation of the Riverwood Acquisition. The New Bank Facilities bear
interest at a rate based upon, at the Partnership's option, either (i) seven
days, one, two, three, or six month London Interbank Offered Rate plus a margin
ranging from 0.35% to 1.125%, adjusted quarterly based on the Partnership's
interest coverage ratio (EBITDA to interest expense), computed on a rolling
four-quarter basis as of the last day of the quarter ending one quarter before
the quarter in question or (ii) the higher of the bank's reference rate or the
federal funds rate plus 0.50%. The Partnership is obligated to pay an annual
commitment fee on the unused portion of the New Line of Credit ranging from
0.125% to 0.325% based on the Partnership's interest coverage ratio.

The $400 million New Line of Credit will mature on October 17, 2001 and
must be reduced to $350 million on October 17, 1999. The $50 million outstanding
under the Bridge Facility will mature April 17, 1998. The Bridge Facility must
be repaid from (i) the proceeds of the issuance of equity in an amount equal to
at least $100 million (including the proceeds of this offering), and (ii)
proceeds of the issuance of new long-term debt, including the New Notes, if
issued. The Bridge Facility will be repaid in full with the proceeds of this
offering.

The agreement governing the New Bank Facilities (the "New Bank Agreement")
contains various financial covenants applicable to the Partnership, including
limitations on the incurrence of additional indebtedness, limitations on
distributions to partners and the maintenance of minimum interest coverage
ratios. The Partnership is also restricted from making distributions to partners
in excess of Available Cash, as reduced by required reserves for future interest
and/or principal payments with respect to the Senior Notes due 2007, the Senior
Notes due 2009, the First Mortgage Notes, the New Bank Facilities. The
Partnership is required to maintain a ratio of EBITDA to Interest Expense (each
as defined in the New Bank Agreement governing the New Bank Facilities),
calculated on a consolidated, four quarter rolling basis, and tested quarterly,
of at least (a) 2.40 to 1.0 from the closing until March 31, 1998, (b) 2.75 to
1.0 for the period April 1, 1998 until September 30, 1999, and (c) 3.00 to 1.0
thereafter. After giving pro forma effect to the Transactions, the Partnership's
ratio of EBITDA to Interest Expense for the twelve-month periods ended December
31, 1995 and June 30, 1996 would have been 3.82 to 1.0 and 3.57 to 1.0,
respectively. In addition to the above financial covenants, the New Bank
Agreement contains various restrictive covenants applicable to the Partnership,
including restrictions on liens, investments, sale and leaseback transactions,
mergers, transfer of assets and timber harvest levels.

EFFECT OF INFLATION

During recent years, the Partnership has generally experienced increased
costs due to the effect of inflation on the cost of raw materials, labor,
supplies and energy. However, the Partnership utilizes the LIFO inventory
valuation method for its raw materials, work-in-process and finished goods
inventory which generally matches current costs to current revenues and thus
tends to reflect the impact of inflation on cost of goods sold.

OTHER MATTERS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121"). FAS 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If impairment has
occurred, an impairment loss must be recognized.

46
<PAGE> 47

Implementation of FAS 121 is required in 1996. The impact of the adoption of
this standard is not expected to be material to the financial position, results
of operations or liquidity of the Partnership.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123"). FAS
123 establishes a fair value based method of accounting for stock based
compensation plans and encourages entities to adopt that method in place of the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). The
Partnership intends to continue to apply the provisions of APB 25 in recognizing
compensation expense related to Unit-based compensation plans and disclose in
footnotes to the financial statements for 1996 the impact on net income had FAS
123 been adopted for expense recognition purposes.

47
<PAGE> 48

BUSINESS AND PROPERTIES

OVERVIEW

Plum Creek owns and manages timberland properties in the northwest United
States and the southeast United States. Plum Creek has the second largest
private holding of timberland in the Pacific Northwest and is one of the largest
owners of private timberland in the United States. Plum Creek owns approximately
2.5 million acres of fee timberland. These holdings include approximately 1.6
million acres containing approximately 7.0 BBF of standing timber in the Rocky
Mountain Region; approximately 330,000 acres containing approximately 2.3 BBF of
standing timber in the Cascades Region; and approximately 529,000 acres
containing approximately 5.4 million Cunits of standing timber in the Southern
Region purchased in connection with the recently completed Riverwood
Acquisition. Plum Creek also manufactures and markets specialty lumber, plywood
and MDF to maximize the value of its timber resource base. Plum Creek owns and
operates 12 manufacturing facilities, including four lumber mills, two plywood
plants, an MDF facility, a lumber remanufacturing facility and a wood chip plant
in the Pacific Northwest and two lumber mills and a plywood facility in the
southeast United States purchased in connection with the Riverwood Acquisition.

Plum Creek also believes the demand for wood fiber in the southeast United
States has increased, and will likely continue to increase, at a faster rate
than the available supply due to the recent and expected future capacity
expansion by pulp and paper and wood products manufacturers. As a result, the
Partnership believes timber harvest levels will continue to exceed growth and
lead to a decline in timber inventory in the region. To capitalize on these
favorable regional industry dynamics, on October 18, 1996 Plum Creek purchased
from Riverwood International the Southern Timberlands and the Southern
Facilities, for a cash purchase price of approximately $540 million plus $11.9
million for working capital as of the closing date, subject to certain customary
post-closing adjustments. Timberlands in the southeast United States, including
the Southern Timberlands, are generally considered to be among the most
productive in the country. Merchantable timber growth on the Southern
Timberlands approximates 12% per year. Due to the substantial wood and paper
products manufacturing capacity in the region, the Partnership believes there is
a highly competitive market for logs harvested from the Southern Timberlands. As
part of the Riverwood Acquisition, the Partnership entered into a long-term
agreement to supply wood fiber to the Riverwood Paperboard Plant at prevailing
market prices, which the Partnership expects will provide Plum Creek with a
secure market for its local mill residuals (primarily wood chips) and a
substantial portion of the pine and hardwood pulpwood harvested from the
Southern Timberlands. Riverwood International is a provider of, among other
things, paperboard packaging to multinational beverage and food companies.

BUSINESS STRATEGY

- Manage its timberlands to maximize their value

- Maintain environmental leadership

- Selectively pursue acquisitions of high quality timber assets

48
<PAGE> 49

- Realize the value of certain properties through sale or exchange

- Apply manufacturing expertise in value-added markets

MANAGE ITS TIMBERLANDS TO MAXIMIZE THEIR VALUE. Plum Creek views its
timber resource base as an asset with substantial inherent value and
consequently manages its timberlands in a manner that is intended to optimize
the balance among current cash flows, prudent environmental management and the
regeneration of its timberlands over time. Plum Creek's harvest management
approach employs state-of-the-art forest management practices, including the use
of a computerized timber inventory system and pre-commercial and commercial
thinning in order to enhance the long-term productivity of its timberlands. In
addition, Plum Creek seeks to maximize future growth and yield from its
timberlands through such techniques as the conversion of older, slower growing
forests to younger, more productive forests using harvesting techniques that
comply with or exceed current environmental requirements, and the development of
genetically improved seedlings to grow trees with desirable traits such as
superior size and disease resistance.

MAINTAIN ENVIRONMENTAL LEADERSHIP. Plum Creek believes that
environmentally sound forest resource and mill management contributes to the
growth in the value and profitability of the Partnership by providing greater
flexibility, control and predictability in the management of its assets on a
long-term basis. Plum Creek intends to continue to practice "Environmental
Forestry," which attempts to better protect and maintain ecosystems while
providing for a reasonable harvest, and to manage all of its properties and
facilities in an environmentally responsible manner. The forestry and mill
practices employed by the Partnership follow a set of environmental principles
aimed at the sound management of all natural resources -- including soils,
watersheds, fisheries and wildlife habitat. Consistent with these principles,
Plum Creek recently implemented one of the most comprehensive habitat
conservation plans created to date in the forest products industry, covering
170,000 acres of the Partnership's timberlands in the Cascades Region.

SELECTIVELY PURSUE ACQUISITIONS OF HIGH QUALITY TIMBER ASSETS. Plum Creek
intends to pursue a disciplined acquisition strategy as one means of increasing
both the value of the Partnership's assets and per Unit distributable cash. To
this end, Plum Creek seeks to identify and acquire high quality timber assets
that will be additive to per Unit cash flow on a stand-alone basis and that will
allow the Partnership to enhance its resource base, diversify its holdings,
provide value-added products to its customers and capitalize on its experience
in resource stewardship. In 1993, Plum Creek acquired 865,000 acres of
timberland in western Montana. This acquisition enhanced Plum Creek's cash flows
and operating flexibility and efficiency in sourcing the timber species needed
for the Northwest Facilities. In addition, by completing the Riverwood
Acquisition, Plum Creek has entered the productive southeast region with a
sufficiently large presence to support additional acquisitions in that region
that it might not otherwise pursue.

REALIZE THE VALUE OF CERTAIN PROPERTIES THROUGH SALE OR EXCHANGE. Plum
Creek seeks to realize the value of property that may have a higher and better
use than for commercial timberland management or is otherwise a candidate for
sale or exchange. Plum Creek has identified approximately 150,000 acres of its
properties located in recreational areas or near expanding population centers
that may optimally be used for conservation, residential or recreational
purposes. Plum Creek's strategy is to realize the value of these properties,
either through sales or exchanges, over the next five to 15 years. Plum Creek
seeks to exchange lands which have high environmental and other public values
for lands that are more suitable for commercial timber management. In addition,
from time to time Plum Creek may sell certain of its timberlands and facilities
if attractive opportunities arise. For example, as part of the Transactions,
Plum Creek sold the Newport Timberlands and the Arden Sawmill.

49
<PAGE> 50

relationships with key customers through enhanced service. For example, Plum
Creek has developed lumber program sales, which involve providing value-added
products with customized services, such as consignment and warehousing programs,
bar-coding and specialized packaging. These programs have been particularly
effective in servicing the rapidly expanding warehouse home center and
do-it-yourself store formats.

THE TIMBERLANDS

GENERAL. The Partnership owns and manages approximately 2.5 million acres
of fee timberland. These holdings include approximately 1.6 million acres
containing approximately 7.0 BBF of standing timber in the Rocky Mountain
Region; approximately 330,000 acres containing approximately 2.3 BBF of standing
timber in the Cascades Region; and approximately 529,000 acres (and
approximately 9,000 acres of leased land) containing approximately 5.4 million
Cunits of standing timber in the Southern Region acquired in connection with the
Riverwood Acquisition. The Partnership views its timber resource base as an
asset with substantial inherent value and consequently manages its timberlands
in a manner that is intended to optimize the balance among current cash flows,
prudent environmental management and the regeneration of its timberlands over
time.

The Northwest Timberlands include substantial holdings of mature,
premium-quality timber. In the Rocky Mountain Region, approximately 37% of the
Partnership's timber inventory consists of Douglas-fir, approximately 16%
consists of Ponderosa Pine and Engelmann Spruce and approximately 15% consists
of Western Larch, premium species of softwood. During 1995, approximately 59% of
the total timber harvest in the Rocky Mountain Region was sold to the Northwest
Facilities, 2% was traded to unaffiliated third parties in exchange for logs
that were then sold to the Northwest Facilities with the remainder sold to
unaffiliated domestic mills.

In the Cascades Region, approximately 48% of the Partnership's timber
inventory consists of Douglas-fir and approximately 17% is Western Hemlock.
Douglas-fir sells for a higher price than most competing softwoods because of
its desirable wood characteristics, including its strength, stability and
appearance. Logs harvested from the Cascades Region are sold for export to the
Pacific Rim, principally Japan, and to unaffiliated domestic mills since the
Partnership does not own sawmills in the Cascades Region.

The Southern Timberlands include approximately 355,000 acres of intensively
managed pine plantations with stands ranging from seedlings to 24 years of age,
and 95,000 acres of mature second growth pine timberland and direct seeded
forests, ranging from 25 years of age up to 70 years or older. The balance of
the acreage consists of approximately 63,000 acres of hardwood areas, some of
which are harvestable, and approximately 25,000 acres of open land used for
roads, rights-of-way and other non-timber uses. The plantation and mature second
growth pine timberlands are stocked primarily with Loblolly Pine used in the
production of Southern Yellow Pine lumber, panel and pulp products, while the
hardwood timberlands carry gum and oak species, used also for lumber, panel and
pulp products, as well as furniture components. During 1995, approximately 37%
of the total timber harvest from the Southern Timberlands was sold to the
Southern Facilities, approximately 38% was sold to the Riverwood Paperboard
Plant and the remainder was sold to unaffiliated domestic mills. The Southern
Timberlands are nearing the end of a process commenced in 1972 of conversion
from unmanaged second growth timber into plantation forests. The Partnership
expects this process to be completed by approximately 2001. The pine fiber
production from such plantations is expected to increase substantially over the
next 10 to 15 years as a result of such conversion. As part of the Riverwood
Acquisition, the Partnership also acquired a seed orchard and seedling nursery
located nearby in Texas, capable of producing annually up to 25 million
genetically improved seedlings, more than double the number required to
regenerate the Southern Timberlands.

The Partnership's Timberlands are well diversified, not only by species mix
but also by age distribution. Growth rates vary depending on species, location,
age and forestry practice. For example, the annual growth rate for the
timberlands in the Partnership's Rocky Mountain Region is slower than the growth
rate for the timberlands in the Cascades Region, which is slower than the growth
rate for timber in the southeast United States. The Southern Timberlands,
located in the southeast United States, generally considered the most productive
region in the country, have a growth rate estimated by the Partnership to
average approximately 12% per annum of merchantable timber. Rain, site and soil
conditions typically cause softwood timber in the Cascades Region, particularly
Douglas-fir and Western Hemlock, to maintain a relatively high growth rate in
early years allowing for management on a relatively short rotation or harvest
cycle of 40 to 60 years. The

50
<PAGE> 51

Rocky Mountain Region areas have a rotation of 70 to 90 years due to lower soil
productivity, higher elevation and lower precipitation which results in slower
growth. The Southern Timberlands' pine plantations have an average rotation of
29 years due to higher soil productivity and a longer growing season. Timber
under 20 years of age in the Cascades Region, 30 years in the Rocky Mountain
Region and 14 years in the Southern Region is generally considered
pre-merchantable and is not included in the timber inventory information set
forth in this Prospectus.

HARVEST PLANS. The General Partner views its timberlands as assets with
substantial inherent value apart from the Conversion Facilities and strives to
manage its timberlands in an economically prudent and environmentally
responsible manner in order to enhance their value. The Partnership determines
its harvesting plans based on a number of factors, including age and size of,
and species distribution within, its timber acreage, economic maturity of each
harvest area, environmental considerations and mill requirements both in the
Conversion Facilities and at unaffiliated mills. The timing of harvest of
merchantable timber depends in part on growth cycles and in part on economic
conditions. Growth cycles for timber tend to change over time as a result of
technological, biological and genetic advances that improve forest management
practices. The Partnership is pursuing an active management approach, including
pre-commercial and commercial thinning and selective harvesting, in order to
enhance productivity on a long-term basis.

With respect to the Northwest Timberlands, the Partnership expects to
continue with its plan to convert older, slower growing forests to younger, more
productive forests using harvesting techniques that comply with or exceed
current environmental requirements. This plan is nearing completion as the
majority of the Northwest Timberlands have been converted from older, more
mature stands to healthier, younger stands which on a long-term basis are more
productive.

Harvest levels in the Rocky Mountain Region after the 1993 Montana
Timberland Acquisition have averaged approximately 350 MMBF annually (excluding
harvests on the Newport Timberlands). These harvest levels are expected, on
average, to remain relatively stable over the next several years. By the year
2001, the Partnership anticipates that it will have nearly completed the
conversion process in the Rocky Mountain Region, at which time it anticipates a
moderate reduction in the region's harvest levels.

Harvest levels in the Cascades Region have averaged approximately 154 MMBF
over the past three years and are expected to approximate 150 MMBF in 1996. The
Partnership expects its harvest levels to decline gradually for the foreseeable
future as the conversion process in the region approaches completion.

Harvest levels in the Southern Timberlands approximated 540,000 Cunits in
1995. Harvest levels during the years 1997 to 2000 are expected to be moderately
higher than the 1995 levels as a result of the anticipated rate of conversion of
mature second growth pine timberlands into intensively managed pine plantations.
Subsequent to the completion of the conversion process by approximately 2001,
harvest levels are expected to decline to levels that approximate those in 1995
and then gradually increase to above 1995 levels as the Partnership benefits
from the faster growing, intensively managed plantations.

DOMESTIC LOGS. The Partnership sells its sawlogs directly to the
Conversion Facilities and unaffiliated wood products manufacturers and sells its
pulpwood and in-wood chips to unaffiliated pulp and paper manufacturers. The
percentage of logs which are sold as sawlogs or pulp logs varies by region and
is dependent upon, among other things, the species mix and quality of the
inventory harvested and the market dynamics affecting the given region. Domestic
sawlog and pulpwood sales accounted for approximately 21% and 4%, respectively,
of the Partnership's revenues in 1995. After giving effect to the Transactions,
domestic sawlog and pulpwood sales on a pro forma basis would have accounted for
approximately 16% and 7%, respectively, of the Partnership's revenues in 1995.

In the Rocky Mountain Region, the Partnership sells virtually all of its
logs domestically as saw timber. Approximately 60% of the timber harvested in
the region is sold to the Northwest Facilities and the remainder is either sold
to unaffiliated domestic mills or traded to other timber companies for logs that
better fit the mills'

51
<PAGE> 52

raw materials needs. In addition, a small amount of lower quality logs is sold
to pulp and paper manufacturers when market conditions permit.

In the Cascades Region, approximately 47% of the total volume harvested in
1995 was sold to unaffiliated domestic wood products manufacturers, as the
Partnership does not own any sawmills in the Cascades Region. The Partnership
also sold 15% of the volume harvested from the Cascades Region to third parties
as pulp logs. These logs generally constitute smaller and lower quality logs
which are not suitable for use by wood products manufacturers.

The Partnership's customers in the Pacific Northwest domestic log market
include numerous operators of conversion facilities. In 1995, the Partnership
sold logs from the Northwest Timberlands to approximately 90 different mill
operators. During 1995, the Partnership had one domestic log customer that
accounted for 9% of combined revenues and 22% of total domestic log sales.

The fee harvest in the Southern Region during 1995 was composed of
approximately 60% pulpwood and 40% sawlogs. During 1995, the percentages of log
volume deliveries from the Southern Timberlands to the Riverwood Paperboard
Plant, the Southern Facilities and unaffiliated third parties were 38%, 37% and
25%, respectively. As part of the Riverwood Acquisition, the Partnership entered
into a long-term agreement to supply pulp wood fiber to the Riverwood Paperboard
Plant at prevailing market prices, which the Partnership expects will provide
Plum Creek with a secure market for its local mill residuals and a substantial
portion of the pine and hardwood pulpwood harvested from the Southern
Timberlands.

Due to the strength in the pulp and paper markets in 1995, the Partnership
implemented in-woods chipping operations in conjunction with conventional
logging operations wherever feasible, producing wood-chips from once-valueless
treetops and other debris that previously were burned. Because pulp and paper
manufacturers are the primary customers for pulp logs and in-woods chips, chip
markets are highly susceptible to fluctuations in markets for pulp and paper.
During the first half of 1996, a decline in chip prices made it uneconomical to
continue most of the Partnership's in-woods chipping operations. However,
operations have resumed in the second half of 1996 at reduced levels.

Domestic wood and fiber consuming facilities in the Pacific Northwest tend
to purchase raw materials within relatively confined geographic areas, generally
within a 200-mile radius, due to transportation costs. Competitive factors
within a market area generally will include price, species and grade, quality,
proximity to wood consuming facilities, ability to supply logs which
consistently meet the customer's specifications and ability to meet delivery
requirements. The Partnership believes that it has a reputation as a stable and
consistent supplier of well-merchandised, high-quality logs. In domestic log
markets, the Partnership competes with numerous private land and timber owners
in the northwestern United States and the state agencies of Idaho, Montana,
Oregon and Washington, as well as lesser amounts of foreign imports, primarily
from Chile and New Zealand. In addition, the Partnership competes with the USFS,
the Bureau of Land Management and the Bureau of Indian Affairs. Timber supplied
from public lands in Washington is restricted from export and is sold solely
into domestic markets. Therefore, in the Pacific Northwest, federal and state
government timber that is of export quality typically sells for lower prices
than private timber which can be exported. See "--Federal and State
Regulations."

EXPORT LOGS. Due to its extensive timber holdings, the Partnership
harvests large volumes of Douglas-fir logs, historically a preferred species in
the Japanese market. Approximately 38% of the total 1995 timber harvest in the
Cascades Region was sold for export to Pacific Rim countries, principally Japan.
Douglas-fir logs sold for export have generally commanded a significant premium
over Douglas-fir logs sold domestically. This export premium results from the
scarcity in Japan and around the world of logs of comparable quality to
Douglas-fir logs. Export log revenues accounted for approximately 10% of the
Partnership's total revenues in both 1995 and the first six months of 1996, and
represented approximately 21% and 25%, respectively, of the Partnership's
operating income in such periods. After giving effect to the Transactions,
export log revenues on a pro forma basis would have accounted for approximately
8% and 9%, respectively, of the Partnership's total revenues in 1995 and in the
first six months of 1996, and would have represented approximately 18% and 20%,
respectively, of the Partnership's operating income in such periods.

The Partnership currently has four export log customers, all of whom are
large Japanese trading companies. Plum Creek and its predecessors have
maintained long-standing business relationships with each

52
<PAGE> 53

of these customers. These companies resell logs purchased from the Partnership
to Japanese conversion facilities or to wholesalers. Competitors in this market
include numerous private land or timber owners in the United States and Canada,
as well as companies and state-controlled enterprises in Chile, New Zealand,
Russia and Scandinavia, all of which have abundant timber resources. While the
Partnership believes that its relationships with these customers is good, it has
no long-term contracts with any of them. Some of the Partnership's biggest
competitors in respect of export logs include Weyerhaeuser Company and Rayonier
Timberlands, L.P. In the export log market, the Partnership competes based on
its long-term relationships with established customers and its reputation as a
reliable supplier of premium logs, including old-growth Douglas-fir logs of
which the Partnership has one of the largest remaining privately held supplies.
Other competitive factors include price, species and grade, and the ability to
meet delivery requirements on a year-round basis.

RESOURCE MANAGEMENT

TIMBER RESOURCE MANAGEMENT. The Partnership's operations involve intensive
timber management and harvesting operations, which include road construction and
reforestation, as well as wildlife and watershed management. The Partnership
employs a number of traditional and newly developed harvesting techniques on its
lands based on site specific characteristics and other considerations. The
Partnership practices "Environmental Forestry" on the Northwest Timberlands,
which attempts to better protect and maintain the ecosystem while providing for
a reasonable harvest. For example, the Partnership utilizes a technique that
prescribes retention of a mix of green and dead trees at the harvest site,
including some large trees, snags and downed logs to enrich and protect the soil
for successive generations of trees and to provide habitats for a variety of
wildlife species. The Partnership intends to continue to employ these types of
Environmental Forestry practices. Plum Creek also intends to manage the Southern
Timberlands in a manner that is consistent with its environmental stewardship
approach.

Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, weather, terrain, tree size, age and
stocking. Forest stands are thinned periodically to improve growth and stand
quality until harvested. The Partnership actively utilizes pre-commercial and
commercial thinning timber management practices. Pre-commercial thinning occurs
when the timber harvested is not merchantable. The Partnership believes that
such thinning improves the overall productivity of its timberlands by enhancing
the growth of the remaining trees. Occasionally, revenues are generated from
these operations, as was the case in 1995 due to the strong markets for wood
chips.

The Partnership's policy is to ensure that every acre harvested is promptly
reforested in order to enhance the long-term value of its timberlands. Based on
the geographic and climatic conditions of a given harvest site, harvested areas
may be regenerated naturally, by leaving mature trees to reseed the area, or
replanted with seedlings. Natural regeneration methods are widely used on about
70% of the harvested land in the Rocky Mountain Region. During 1995, the
Partnership planted more than 4.7 million seedlings, primarily in the Cascades
Region where substantially all the reforestation is accomplished by planting
seedlings. The Partnership uses genetically improved seedlings (representing
approximately 10% to 15% of seedlings planted) to grow trees with desirable
traits such as superior growth characteristics and disease resistance, resulting
in 5% to 15% greater wood volume over a rotation. The seedlings for the
Northwest Timberlands are grown in the Partnership's nurseries, which utilize
seeds from the Partnership's two seed orchards.

Substantially all of the areas harvested in the Southern Timberlands since
1972 have been regenerated with seedlings. Approximately 45% of the seedlings
were genetically improved. The Partnership expects to use genetically improved
seedlings grown at its nursery in Texas and from other sources for its plantings
in the Southern Timberlands. During the 1995-1996 planting season, approximately
12 million seedlings were planted on the Southern Timberlands.

LAND MANAGEMENT. Plum Creek seeks to realize the value of property that
may have a higher and better use than for commercial timberland management or is
otherwise a candidate for sale or exchange. Plum Creek has identified
approximately 150,000 acres of its properties located in recreational areas or
near expanding population centers that may optimally be used for conservation,
residential or recreational purposes. Plum Creek's strategy is to realize the
value of these properties, either through sales or exchanges, over the next five
to 15 years. Plum Creek seeks to exchange lands which have high environmental
and other public values for

53
<PAGE> 54

lands that are more suitable for commercial timber management. Approximately
11,000 acres have been sold in the three years ended December 31, 1995,
accounting for an average of 1% of the Partnership's revenues for each of 1993,
1994 and 1995. In addition, from time to time Plum Creek may sell timberlands
and facilities if attractive opportunities arise. For example, as part of the
Transactions, Plum Creek sold the Newport Timberlands and the Arden Sawmill.

CONVERSION FACILITIES

GENERAL. The Northwest Facilities are operated to add value to logs
harvested from the Rocky Mountain Region. Logs from the Rocky Mountain Region
that the Partnership does not sell in the domestic market are converted to
lumber, plywood or other wood products in the Partnership's manufacturing
facilities located in western Montana, which consist of four lumber mills, two
plywood plants, an MDF facility and a lumber remanufacturing facility. The price
of logs obtained by the Partnership's Conversion Facilities from the Rocky
Mountain Region is determined quarterly based upon estimated market prices and
terms in effect at the time. Sales of manufactured wood products accounted for
64% of the Partnership's revenues in 1995. In connection with the Riverwood
Acquisition, the Partnership acquired the three Southern Facilities, which
consist of a sawmill and a plywood plant in Joyce, Louisiana and a sawmill in
Huttig, Arkansas. In order to enhance customer service and provide prompt
deliveries, the Partnership has also established a network of 40 field inventory
locations throughout the United States, including public warehouses.

The Partnership employs modern technology in its manufacturing facilities
in order to improve efficiency and labor productivity, maximize utilization of
the timber resource and maintain the high quality standards that have been the
basis of its penetration of value-added niche markets. Since its inception in
1989, Plum Creek has invested approximately $115 million in capital improvements
to improve the efficiency and expand the capacity of its conversion facilities.
As a result, all of the Northwest Facilities, except the Cle Elum chip plant and
the Ksanka stud mill, have state-of-the-art machinery and conversion processes.
The Partnership expects to continue investing capital in the Conversion
Facilities depending on projected return on investment, customer requirements,
environmental compliance matters and changes in the industry. In each of the
next several years, the Partnership expects that its annual maintenance capital
expenditures related to the Northwest Timberlands and the Northwest Facilities
will range from $10-12 million, excluding acquisitions. The Partnership expects
its capital expenditures in respect of the Southern Timberlands and Southern
Facilities to be approximately $8.0 million in 1997. The Partnership does not
anticipate making significant capital investments in the Southern Facilities in
the foreseeable future.

LUMBER. Lumber sales, including remanufactured lumber, accounted for
approximately 38% of the Partnership's revenues in 1995, both historically and
after giving effect to the Transactions on a pro forma basis. The Partnership
produces a diverse line of lumber products, including common and select boards,
industrial lumber and studs. Board and industrial lumber sales revenue
represented approximately 62% of lumber sales revenue in 1995.

Plum Creek targets its lumber sales toward domestic lumber retailers, such
as retail home center chains, for use in repair and remodeling projects. Repair
and remodeling markets represent approximately 33% of the total United States
lumber consumption. In order to attract and retain market share in the retail
and industrial sectors, the Partnership has established program sales
relationships with key customers, including six of the top ten largest home
center chains. These program sales involve providing value-added products with
customized services, including consignment and warehousing programs, bar-coding
and specialized packaging. This strategy has been particularly effective in
servicing the rapidly expanding warehouse home center and do-it-yourself store
formats. Moreover, the Partnership's focus on value-added products, such as
consumer appearance boards, pull-to-length boards, premium furring strips,
premium studs and pattern boards targeted to specialty markets, has enabled it
to reduce the amount of the product it sells into the more volatile housing-
related markets.

The Southern Region lumber mills currently produce a broad range of high
quality dimension, industrial and export lumber products, using high quality fee
timber from the Southern Timberlands, as well as non-fee timber offered on the
open log market. Dimension lumber products are used in home construction across
the United States, while industrial lumber is used in manufacturing
applications. A key strength of the combined sawmill and plywood operations is
the ability to use a range of log qualities and to route logs to the highest end

54
<PAGE> 55

use, whether sheathing plywood, sanded plywood, dimension lumber, or high
quality export lumber. The synergistic effect of teaming lumber and plywood at
one location tends to result in operations with a higher overall recovery,
higher sales realizations and lower costs.

Competition in the Partnership's lumber markets is primarily based on price
and quality and, to a lesser extent, the ability to meet delivery requirements
on a consistent long-term basis and provide specialized customer service. The
Partnership competes in domestic lumber markets primarily with other United
States and Canadian companies. Canadian lumber producers have increased their
penetration into the United States market due to their lower wood fiber costs
and favorable exchange rates. During the five-year period ended December 31,
1995, Canadian companies increased their aggregate share of the North American
lumber markets from 27% to 36%. This contributed to a 20% decline in the price
of studs from January 1994 to June 1996. The lumber market is also subject to
competition from substitute products, primarily in shelving, window and door
markets. Substitute products include radiata pine, MDF, particle board,
laminates and wire shelving. Substitution has significantly increased in the
past several years due to the increases in the prices of studs and boards in the
early 1990s.

PLYWOOD. Plywood sales accounted for approximately 18% of the
Partnership's revenues in 1995. After giving effect to the Transactions, plywood
sales on a pro forma basis would have accounted for approximately 22% of the
Partnership's revenues in 1995. The Partnership's plywood products from the
Northwest Timberlands are generally of higher quality and value than commodity
construction products. In 1995, 71% of the Partnership's plywood products were
sold into specialty industrial markets, including carpet strip, recreational
boat, recreational vehicle and fiberglass-reinforced panel markets. The
Partnership estimates that it has market shares of 45% in the carpet strip
market, 25% in the fiberglass and aluminum boat market, 45% in the recreational
vehicle market and 35% in the fiberglass-reinforced panel market. The plywood
facility in Joyce, Louisiana processes lower quality pine logs and good quality
hardwood logs into commodity and specialty grade panel products used in home
construction and furniture.

Competition within the plywood market is based primarily on price and
quality, and to a lesser extent, the ability to offer a full line of products
and meet delivery requirements on a consistent, long-term basis. The domestic
plywood market is characterized by numerous large and small producers and is
also subject to competition from OSB, a wood product which is a less expensive
and generally lower quality substitute. Due to OSB's cost advantage, its demand
and market share in the residential segment has been increasing, and the
Partnership expects this trend to continue. Between 1994 and 1998 the annual
industry-wide capacity for OSB is expected to nearly double to 22 BSF. The
quality of OSB continues to improve and has become widely accepted in most
building applications. However, since OSB does not have the strength-to-weight
ratio, moisture resistance and machinability of plywood, it cannot be used in
certain specialty applications. As a result, the Partnership believes plywood
will continue to be used primarily in applications where water exposure, surface
aesthetics, extensive cutting or fastener retention are critical factors. Many
of these requirements are found in industrial applications and in higher value
construction applications. Some commodity plywood manufacturers, in order to
avoid closing their facilities, have been refocusing their products toward the
specialty plywood market which has resulted in increased competition in markets
that the Partnership serves. The Partnership expects to remain competitive due
to its strong customer base, extensive experience in the industrial markets,
reputation for high quality products (including various trademarked products
such as MarineTech(R), RV-X(R), DuraFloor(R), and Ultra-Core(R)), supply of
superior wood (tight grain with few knots), and the full line of products that
it offers.

MEDIUM DENSITY FIBERBOARD. The Partnership supplies high quality MDF to
markets in North America and the Pacific Rim. MDF products are primarily sold to
distributors and door, moulding, fixture and furniture manufacturers. The
Partnership estimates that it has approximately an 8% share of the North
American MDF market. MDF sales accounted for approximately 7% of the
Partnership's revenues in 1995. After giving effect to the Transactions, MDF
sales on a pro forma basis would have accounted for approximately 6% of the
Partnership's revenues in 1995. The Partnership produces MDF products at its
Montana facility using sawdust and wood shavings which are low-value wood
residuals. During 1995, the manufacturing process was redesigned to produce
MDF2, a product which Plum Creek introduced late in that year. One of the
highest quality MDF products available, MDF2 can be machined and finished more
efficiently and has expanded the Partnership's markets to include higher value
applications, such as mouldings and kitchen cabinets.

55
<PAGE> 56

MDF producers compete on a global scale, primarily on the basis of price,
quality and the level of service provided. MDF is also subject to competition
from solid wood products and hardboard and particle board products. Competition
in the industry has been increasing as a result of significant capacity
expansion both in the United States and Canada. In 1995, North American capacity
was approximately 1.5 BSF and, by the turn of the century, capacity is expected
to increase by an additional 1.1 BSF. Much of the new capacity will be in direct
competition with MDF2. Over the same time period demand is also expected to
increase, but at a slower rate. The Partnership believes it is well positioned
to compete based on quality and price. MDF2 commands a price premium over
standard MDF due to its superior quality and the panel's physical properties and
densities. Moreover, because the Partnership's fiber supply consists of western
softwoods, a slow growth species with a low abrasive content, MDF2 has proven to
have superior machining and finishing qualities over competing MDF products. In
addition, by eliminating wood chips from the MDF manufacturing process (which
substantially reduces raw material costs) and because of the MDF facility's
access to low-cost energy sources, the Partnership believes it is one of the
lowest cost producers in the market.

The Partnership sources 60% of its sawdust and wood shavings fiber for MDF
internally from its plywood and lumber operations in the Pacific Northwest. The
remaining 40% of the fiber is purchased from third parties. Production for 1995
was reduced by downtime encountered during the start-up of new high-energy
refiners for the Partnership's new MDF2 product and deterioration in market
demand. Production for 1996 is also expected to be below full capacity due to a
continued focus on producing high quality MDF2 during the extended start-up
phase. The start-up phase for MDF2 was completed in mid-1996.

RESIDUAL WOOD CHIPS. The Partnership's lumber and plywood mills produce
residual wood chips as a by-product of the conversion of raw logs into finished
products. These wood chips are sold to regional paper and pulp mills. The
Partnership also produces wood chips at its Cle Elum, Washington chip plant. The
plant was shut down on April 1, 1996, due to the weak chip markets and is not
expected to reopen until prices improve. Residual wood chip revenues are
included in lumber and plywood product sales. See "-- Domestic Logs."

The Partnership competes in the chip market (both in-woods and residual)
with numerous other private timber owners and wood products manufacturers
located in the general area of its Conversion Facilities and Timberlands
primarily on the basis of price and its ability to meet delivery requirements on
a consistent long-term basis. The chip market has been volatile over the last
two years due to swings in supply and demand resulting in record high prices in
1995 (up 56% between 1994 and 1995) and significant price corrections in the
first half of 1996 (approximately 28% price decrease).

SOURCES OF RAW MATERIAL FOR CONVERSION FACILITIES

Since 1988, the volume of federal timber under contract in the Pacific
Northwest has been reduced by approximately 86%, principally as a result of
efforts to preserve the habitat of certain threatened species, as well as a
change in the emphasis of government policy away from timber management and
toward habitat preservation, conservation and recreation. See "--Federal and
State Regulations." This major supply reduction has resulted in a number of
regional mill closures in the past several years. As a result of the reduced
availability of federal timber for harvesting, the Partnership believes that its
supply of fee timber gives it a significant competitive advantage. During 1993,
1994 and 1995, the Rocky Mountain Region provided the Northwest Facilities with
51%, 63% and 73% of their log requirements. The increase was primarily due to
increased harvest levels as a result of the Montana Timberland Acquisition in
late 1993. The Southern Facilities are currently sourced with approximately 53%
fee timber and 47% non-fee timber. The Partnership expects it will be able to
maintain the current level of sourcing from the Rocky Mountain Region and
expects that the Southern Timberlands will supply approximately 50-60% of the
log requirements of the Southern Facilities in 1997 and approximately 75% in the
longer term. The Partnership supplements logs from its timberlands with stumpage
and logs purchased from external sources. At December 31, 1995, the Partnership
had 75 MMBF under contract from external sources in the Pacific Northwest which
will be harvested over three years.

The Northwest Timberlands provide a consistent supply of quality logs and
preferred species to the Northwest Facilities, although over time the average
log size is expected to decline, and the species mix is expected to change due
to harvest and growth patterns. The Partnership's MDF facility has a consistent
supply of sawdust and shavings through a combination of internal and external
sources. The remanufacturing facility,

56
<PAGE> 57

which produces finger-jointed studs, uses short pieces of lumber, a by-product
of the Partnership's studmill operations.

COMPETITION

The forest products market is highly competitive with respect to price and
quality. Many of the Partnership's competitors have substantially greater
financial and operating resources than the Partnership. In addition, the
Partnership expects its wood products to experience increasing competition from
a variety of substitute products, including non-wood and engineered wood
products. Plywood markets are subject to competition from OSB, and lumber and
log markets are subject to competition from other worldwide suppliers. See
"-- Conversion Facilities." The Partnership believes it is able to compete
effectively due to its extensive private timber inventory (which includes
several premium species such as Douglas-fir and Ponderosa Pine), its proven
leadership in environmental forestry which has reduced the uncertainty
associated with ever increasing levels of federal and state regulation, its
reputation as a dependable, long-term supplier of quality products, its
innovative approach to providing high quality, value-added products to various
specialty and industrial niche markets and the integration of its timberlands
with its efficient manufacturing processes. See "--The Timberlands" and "Risk
Factors--The Partnership Experiences Significant Competition."

FEDERAL AND STATE REGULATIONS

ENDANGERED SPECIES. The ESA protects species threatened with possible
extinction. Protection of endangered species may include the imposition of
restrictions on timber harvesting and road building activities in areas
containing the affected species. A number of species indigenous to the
Timberlands have been listed as threatened or endangered or have been proposed
for such status under the ESA, including the northern spotted owl, marbled
murrelet, gray wolf, red cockaded woodpecker, mountain caribou, grizzly bear,
bald eagle and various salmon species.

In 1990, the United States Fish and Wildlife Service (the "USFWS") listed
the northern spotted owl ("Owl") as a threatened species throughout its range in
Washington, Oregon and California. At the time of the listing, the USFWS issued
suggested guidelines ("Guidelines") to be followed by landowners in order to
comply with the ESA's prohibition against harming or harassing Owls. The
Guidelines recommend several measures, including the restriction of harvest
activities in areas within a certain proximity of known Owl activity centers.
The USFWS also has proposed a rule for the conservation of the Owl on
non-federal land. Such proposed rule has not been adopted but is substantially
similar to the Washington Rule described below.

In May 1996, the Washington State Forest Practices Board (the "Board")
adopted permanent regulations, effective July 1996, to protect habitat for the
Owl (the "Washington Rule"). Under the Washington Rule, designated Owl special
emphasis areas ("SEAs") have restrictions that are similar to but slightly
greater than those contained in the Guidelines. Approximately 60% of the
Partnership's timberlands in the Cascades Region are within SEAs. The Washington
Rule exempts from its provisions forest practices that are consistent with a
federally approved habitat conservation plan and related permit.

In June 1996, the Partnership received a permit under the ESA from the
USFWS and the National Marine Fisheries Service ("NMFS" and together with the
USFWS, the "Services") that covers the Partnership's forest management on
170,000 acres within SEAs in the Cascades Region (the "Planning Area").
Substantially all of the areas impacted by Owls are within the Planning Area. As
a part of the permit application, the Partnership prepared a multi-species
habitat conservation plan (the "HCP") that will govern the Partnership's
management activities in the Planning Area during the 50-year life of the
permit. The HCP requires the Partnership to maintain certain levels of wildlife
habitat and to take numerous other mitigation measures, including the protection
of riparian areas.

In consideration for such mitigation, the permit authorizes forestry
practices that are consistent with the HCP even though they may have an adverse
impact on the four listed species currently covered by the plan and permit,
including the Owl. The HCP provides that the Services will amend the permit to
add subsequently listed species without requiring the Partnership to provide
additional mitigation absent extraordinary circumstances. Such circumstances
would include situations where continued activity under the HCP would have a
significant material adverse impact on the species and mitigation on federal
land would not alleviate the concern. As an incentive to the Partnership to
create additional wildlife habitat in the Planning Area, the

57
<PAGE> 58

permit provides certain additional authorization during a second 50-year period
if the wildlife habitat within the Planning Area exceeds levels set in the HCP.
The permit thus is expected to provide long-term certainty and predictability
for the Partnership's harvest activities in the Planning Area. For lands within
the Planning Area, the HCP management restrictions replace existing state and
federal restrictions for Owls.

In December 1995, the Partnership entered into an agreement to conserve
grizzly bears (the "Grizzly Bear Agreement") with the USFWS, the USFS, and the
state of Montana covering 83,000 acres of the Partnership's timberlands in the
Swan Valley in western Montana. Under the Grizzly Bear Agreement, the
Partnership has agreed to protect certain habitat and to minimize the impact of
the Partnership's forestry activities on the grizzly bear. In consideration for
this mitigation, the USFWS authorized forestry practices in the Swan Valley that
are consistent with the agreement even though such practices may have an adverse
impact on grizzly bears.

Although the HCP and Grizzly Bear Agreement have been implemented and are
functioning as expected, there can be no assurance that the terms of such
agreements will remain in force or be sufficient to protect against subsequent
amendment of the ESA or additional listings thereunder, or against changes to
other applicable laws and regulations. Any such changes could materially and
adversely affect the Partnership's operations. In addition, legal challenges
could disrupt the continued operation of the HCP and the Grizzly Bear Agreement
and thereby reduce the level of certainty the Partnership anticipates gaining
from such plans.

The ESA also prohibits the federal government from jeopardizing species
listed under the ESA or from destroying or adversely modifying their designated
critical habitat. Private landowners are potentially affected by these
restrictions if a private activity requires federal action, such as the granting
of access or federal funding. Where there is such a federal connection, the
federal agency involved must consult with the USFWS or, in the case of
anadromous fish, NMFS to determine that the proposed activity would not
jeopardize the listed species or cause direct or indirect adverse modification
of its designated critical habitat. If the landowner's proposed activity would
have such effects, the USFWS or NMFS must propose, where possible, alternatives
or modifications to the proposed activity.

The Northwest Timberlands are often intermingled with federal land in or
near areas that include the habitats of a number of threatened or endangered
species such as the Owl and the grizzly bear. Access across federal lands may
require federal approval. In the past, the Partnership's access to such areas
has been delayed by administrative processes and legal challenges and has been
restricted under the ESA. The Partnership believes that access to its lands in
the Planning Area and the Swan Valley should be facilitated by the HCP and the
Grizzly Bear Agreement, although no assurance can be given that further such
delays will not occur.

At this time, the Partnership believes that federal and state laws and
regulations related to the protection of endangered species will not have a
material adverse effect on the Partnership's financial position, results of
operations or liquidity. The Partnership anticipates, however, that increasingly
strict laws and regulations relating to the environment, natural resources and
forestry operations, as well as increased social concern over environmental
issues, may result in additional restrictions on the Partnership leading to
increased costs, additional capital expenditures and reduced operating
flexibility.

GENERAL ENVIRONMENTAL REGULATION. The Partnership's operations are subject
to federal, state and local environmental laws and regulations, including laws
relating to water, air, solid waste and hazardous substances. Although the
Partnership believes that it is in material compliance with these requirements,
there can be no assurance that significant costs, civil and criminal penalties,
and liabilities will not be incurred, including those relating to claims for
damages to property or natural resources resulting from the Partnership's
operations. The Partnership maintains environmental compliance programs and
periodically conducts regular internal and independent third-party regulatory
audits of the Northwest Facilities to monitor compliance with such laws and
regulations and expects to maintain such programs and conduct such audits with
respect to the Southern Facilities. Several of the Conversion Facilities have
been, are currently, and may in the future be the subject of compliance or
enforcement proceedings under environmental laws and regulations. The
Partnership anticipates that pending compliance matters affecting the Northwest
Facilities will be satisfactorily resolved without any material expenditure or
substantial impairment of activities or operations.

58
<PAGE> 59

Environmental laws and regulations have changed substantially and rapidly
over the last 20 years, and the Partnership anticipates there will be continuing
changes. The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, such as emissions of
pollutants and the generation and disposal of wastes. Increasingly strict
environmental restrictions and limitations have resulted in increased operating
costs for the Partnership and it is possible that the costs of compliance with
environmental laws and regulations will continue to increase.

Although the Partnership does not consider current laws and regulations
relating to the environment to be materially burdensome, there can be no
assurance that such laws or future legislative, administrative or judicial
actions, which are becoming increasingly stringent, will not adversely affect
the Partnership or its ability to continue its activities and operations as
currently conducted with respect to the Northwest Facilities and Northwest
Timberlands or conduct similar activities and operations with respect to the
Southern Facilities and Southern Timberlands.

AIR QUALITY. The Conversion Facilities emit regulated substances that are
subject to the requirements of the federal Clean Air Act, as amended, and
comparable state statutes. Most of the Conversion Facilities are required to
obtain federal operating permits under Title V of the 1990 Clean Air Act
Amendments. Title V requires that major industrial sources of air pollution
obtain federally enforceable permits which contain all of the applicable air
quality restrictions for the facility. The General Partner believes that the
cost of obtaining all of the required Title V permits for the Northwest
Facilities will not exceed $150,000.

In June 1995, the Partnership received a Compliance Order ("Order") from
the Environmental Protection Agency ("EPA") under the Clean Air Act. The Order
alleges that the startup in 1990 of a boiler at the Partnership's Pablo sawmill
did not meet new source performance standards ("NSPS"). Work on the boiler
project commenced in March 1989, when NSPS did not apply to boilers of this
size. Prior to final startup of the boiler, however, new rules were proposed
that, if applicable, would have required meeting these standards. The EPA has
taken the position that the new rules applied, and is seeking compliance with
NSPS. In December 1995, the Partnership voluntarily installed a pollution
control device and an opacity monitor on the boiler at a cost of $700,000
without waiving any defenses to the EPA claim. The Partnership believes it is in
full compliance with both the Order and NSPS. On March 12, 1996, the Department
of Justice, on behalf of the EPA, filed suit in federal court seeking civil
penalties and injunctive relief for the alleged violation of NSPS in accordance
with the Clean Air Act which contemplates civil penalties. The Partnership
believes it has meritorious defenses to the claim. However, due to the inherent
nature of litigation, the Partnership cannot predict the outcome of the
enforcement case. If not resolved earlier, it is likely that the matter will go
to trial in 1997. The General Partner believes, based upon available information
and current EPA enforcement policies, that the ultimate outcome of this action
will not have a material adverse effect on the Partnership's financial position,
results of operations or liquidity.

The Partnership has worked and continues to work with the State of
Washington Department of Ecology ("DOE") concerning opacity above permitted
levels associated with emissions at the Arden Sawmill that may occur from time
to time. The Partnership recently received a letter from DOE requesting
information concerning such emissions. DOE has not taken any other compliance
actions with respect to this matter. As part of the Newport Asset Sale, the
Partnership sold the Arden Sawmill to Stimson and will be required to indemnify
Stimson for any liabilities that arise relating to the period when the
Partnership owned the Arden Sawmill. However, based upon its past experience
with similar compliance issues, the Partnership believes that this matter will
not materially affect the Partnership's financial position, results of
operations or liquidity.

WATER QUALITY AND WASTEWATER. The federal Clean Water Act and comparable
state statutes regulate discharges of process wastewater, and require National
Pollutant Discharge Elimination System permits for discharge of industrial
wastewater and stormwater into regulated public waters. The Partnership believes
that such laws will not have a material adverse effect on the Partnership's
financial position, results of operations or liquidity.

HAZARDOUS MATERIALS. The Conversion Facilities use and generate both
hazardous and nonhazardous substances, including wood waste and boiler ash, the
handling and disposal of which is subject to federal and state laws, including
RCRA, CERCLA (also known as Superfund) and comparable state laws. CERCLA imposes
liability, without regard to fault or the legality of the original act, on
certain classes of persons

59
<PAGE> 60

(potentially responsible parties, or "PRPs") that contribute to a release or
threatened release of a hazardous substance into the environment. PRPs include
the owner or operator of a site at which such a release or threatened release
occurs, as well as any person who disposed of, or arranged for disposal of,
hazardous substances at such a site.

In the ordinary course of their operations, several of the Conversion
Facilities have in the past utilized, and are expected to continue to utilize,
on-site and off-site facilities for the disposal of hazardous and nonhazardous
wastes. In addition, certain site activities, including those of former
operators of the Partnership's properties, may have resulted in conditions that
may require remediation under environmental laws. The Partnership believes that
it will not incur responsibility for any cleanup costs under Superfund with
respect to past activities affecting the Northwest Facilities or the Northwest
Timberlands that would be likely to have a material adverse effect on the
Partnership's financial position, results of operations or liquidity. The
Partnership has conducted and, in certain cases, may conduct limited
environmental assessments of the Southern Timberlands and Southern Facilities.
Although there can be no assurances that such continuing assessments will not
reveal additional environmental issues, the Partnership believes that, based
principally on the types of environmental matters identified to date, such
identified matters would not be likely to have a material adverse effect on the
Partnership's financial position, results of operations or liquidity.

TIMBERLANDS. In addition to federal environmental laws, the Partnership's
activities are and will in the future be subject to federal and state laws and
regulations regarding forestry operations. The operation of the Timberlands is
subject to specialized statutes and regulations in the states in which it
operates, which currently include Montana, Washington, Idaho, Louisiana,
Arkansas and Texas. Many of these states have enacted laws which regulate
forestry operations, such as growing, harvesting and processing activities on
forest lands. Among other requirements, these laws impose certain reforestation
obligations on the owners of forest lands. Several states require prior
notification before beginning harvesting activity. The state of Washington
requires a regulatory review taking from 15 to 30 days or more prior to
harvesting, depending upon the environmental and other sensitivities of the
proposed logging site.

Other state laws and regulations control slash burning and harvesting
during fire hazard periods, logging activities affecting water courses or in
proximity to certain ocean and inland shore lines, water quality and certain
grading and road construction activities. In addition, state and federal laws
control oil and natural gas extraction activities. Such activities have been and
will continue to be conducted on portions of the Southern Timberlands by third
party oil and natural gas owners, lessees and operators. Such activities can
result and have resulted in petroleum and related contamination. There can be no
assurance that such contamination will not result in significant mitigation or
remediation costs to the Partnership.

LOG EXPORTS. Federal legislation currently prohibits the sale of
unprocessed logs harvested from federal lands located in the western half of the
United States if such logs will be exported from the United States by the
purchaser thereof, or if such logs will be used by the purchaser thereof as a
substitute for timber for private lands which is exported by such purchaser. In
order to enforce this substitution prohibition, the legislation requires persons
who export private logs and who wish to purchase federal timber to obtain an
approved federal timber "sourcing area." To gain approval it must be shown that
the desired federal timber sourcing area is economically and geographically
separate from the area from which such person exports private logs. In 1991, the
Partnership applied for and obtained an approved sourcing area for the
Partnership's Northwest Facilities. Under the legislation, sourcing areas are
subject to review and renewal at least every five years.

In October 1995, the USFS issued final regulations implementing the 1990
legislation that could have made it more difficult to obtain sourcing areas.
Such regulations, however, have been temporarily withdrawn pursuant to
Congressional action to allow time for further public comment and for Congress
to consider modifications to the export law. Revisions to the law and
regulations have not yet been proposed. Although the uncertainty surrounding the
export law and regulations makes it difficult to predict the timing or the
outcome of a review, the Partnership believes that its sourcing area meets the
current statutory test and should be renewed.

SAFETY AND HEALTH. The operations of the Timberlands and the Conversion
Facilities are subject to the requirements of the Occupational Safety and Health
Act ("OSHA") and comparable state statutes relating to the health and safety of
employees. The Partnership believes that it is in substantial compliance with
OSHA regulations, including general industry standards, permissible exposure
levels for toxic chemicals (including wood

60
<PAGE> 61

dust and formaldehyde) and record-keeping requirements. The Partnership conducts
internal safety audits to identify potential violations of law or unsafe
conditions and expects to conduct similar internal safety audits of operations
affecting the Southern Facilities and the Southern Timberlands.

PRODUCT LIABILITY AND REGULATION. All of the states in the United States
and many foreign jurisdictions in which the Partnership sells its products have,
through some combination of legislation and judicial decision, provided for the
liability of the manufacturer and supplier of defective materials for resulting
personal injury and property damage. The operations of the Partnership entail
exposure to product liability in connection with both the export and domestic
sale of logs and lumber products. The Partnership has not been subject to any
material litigation relating to product liability.

LITIGATION

The Company has litigation incidental to its business, none of which the
Partnership believes will have a material adverse effect on the financial
position, the results of operations or liquidity of the Company. See "-- Federal
and State Regulations -- Air Quality."

EMPLOYEES

As of June 30, 1996, the Partnership had approximately 390 salaried and
1,530 hourly employees, including employees of the General Partner that manage
the businesses of the Partnership. The employees of the Northwest Facilities and
the Northwest Timberlands are not unionized, and the Partnership believes that
its employee relations are good. The Partnership's wage scale and benefits are
generally competitive with other forest products companies. The harvesting and
delivery of logs are conducted by independent contractors who are not employees
of the Partnership.

Prior to the Riverwood Acquisition, the operations of the Southern
Timberlands employed approximately 69 hourly and 36 salaried workers and the
operations of the Southern Facilities employed approximately 555 hourly and 64
salaried workers, substantially all of whom the Partnership expects to employ
following the Riverwood Acquisition. Hourly employees (164 employees) at the
Huttig, Arkansas lumber mill are eligible to participate in the UBC Southern
Council of Industrial Workers, Local Union No. 2346, AFL-CIO. The current union
contract expires in February 1997.

61
<PAGE> 62

MANAGEMENT

PARTNERSHIP MANAGEMENT

The General Partner manages the activities and operations of the
Partnership, and the General Partner's activities are limited to such
management. Unitholders do not directly or indirectly participate in the
management of the Partnership. The General Partner owes a fiduciary duty to the
Unitholders, subject to certain limitations described in "Conflicts of
Interest."

The key executives and operating managers of the Partnership have many
years of experience in all aspects of the forest products industry.

Corp. I is the indirect general partner of the General Partner. The
officers of the General Partner and the directors of Corp. I are the persons who
currently manage the business of the Partnership. The Partnership and its
subsidiaries also employ salaried and hourly personnel to carry out their
operations. The General Partner and Corp. I or their affiliates, as the case may
be, are entitled to be reimbursed by the Partnership for direct and indirect
general and administrative costs incurred by them for or on behalf of the
Partnership. These general and administrative costs were approximately $5.6
million in 1995.

The Conflicts Committee of the Board of Directors of Corp. I (the
"Conflicts Committee") meets as often as deemed appropriate to review specific
transactions, policies and practices of the Partnership dealing with various
matters as to which conflicts of interest may arise. See "Conflicts of
Interest."

The Audit and Compliance Committee of the Board of Directors of Corp. I, on
an annual basis, or more frequently as such committee may deem appropriate,
reviews policies and practices of Corp. I and the Partnership dealing with
various matters relating to the environmental performance as well as financial
condition and auditing procedures of the Partnership.

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is certain information concerning the executive officers of
the General Partner and directors of Corp. I who are responsible for the
operations of the Partnership. All directors of Corp. I are elected annually by
its stockholders. All officers of the General Partner serve at the discretion of
the Board of Directors of Corp. I.

The directors of Corp. I and the executive officers of the General Partner
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(1)
------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Rick R. Holley....................... 44 Director, President and Chief Executive Officer
David D. Leland...................... 61 Director and Chairman of the Board
Ian B. Davidson...................... 64 Director
George M. Dennison................... 61 Director
Charles P. Grenier................... 47 Director, Executive Vice President
William E. Oberndorf................. 43 Director
William J. Patterson................. 34 Director
John H. Scully....................... 52 Director
William R. Brown..................... 45 Vice President, Resource Management
Lindsay G. Crawford.................. 47 Vice President, Southern Region
Diane M. Irvine...................... 37 Vice President and Chief Financial Officer
James A. Kraft....................... 41 Vice President, General Counsel and Secretary
</TABLE>

Rick R. Holley--Mr. Holley was elected a Director of Corp. I effective
January 1, 1994. Mr. Holley has been President and Chief Executive Officer of
the General Partner since January 1, 1994. Mr. Holley was Vice President and
Chief Financial Officer of the General Partner from December 1992 to December
1993 and was Vice President and Chief Financial Officer of Plum Creek Management
Company ("PCMC"), the General Partners' predecessor, from April 1989 to December
1992.

62
<PAGE> 63

David D. Leland--Mr. Leland became a Director and the Chairman of the Board
of Directors of Corp. I in December 1992 and is a member of the Compensation
Committee and the Conflicts Committee of the Board of Directors. Mr. Leland was
President and Chief Executive Officer of the General Partner from December 1992
to December 1993. Mr. Leland was a Director and President and Chief Executive
Officer of PCMC from April 1989 to December 1992.

Ian B. Davidson--Mr. Davidson was elected a Director of Corp. I in December
1992 and is a member of both the Audit and Compliance Committee and the
Compensation Committee and is Chairman of the Conflicts Committee of the Board
of Directors. Since 1970, Mr. Davidson has been Chairman and Chief Executive
Officer of D.A. Davidson & Co. and DADCO, a regional brokerage firm. See
"Underwriting." Mr. Davidson also serves as a Director of Energy West and the
DADCO Companies.

George M. Dennison--Dr. Dennison was elected a Director of Corp. I
effective February 1994 and is a member of the Audit and Compliance Committee,
the Compensation Committee and the Conflicts Committee of the Board of
Directors. Since 1990, Dr. Dennison has been President and Professor of History
at the University of Montana. From 1987 to 1990, Dr. Dennison was Provost and
Vice President for Academic Affairs and Professor of History at Western Michigan
University.

Charles P. Grenier--Mr. Grenier was elected a Director of Corp. I effective
April 11, 1995. Mr. Grenier has been Executive Vice President of the General
Partner since January 1, 1994. Mr. Grenier was Vice President, Rocky Mountain
Region, of the General Partner from December 1992 to December 1993 and was Vice
President, Rocky Mountain Region of PCMC, from June 1989 to December 1992.

William E. Oberndorf--Mr. Oberndorf was elected a Director of Corp. I in
November 1992 and is Chairman of the Compensation Committee of the Board of
Directors. Mr. Oberndorf is Vice President and Treasurer of Corp. I. Since 1991,
Mr. Oberndorf's principal occupation has been as a Managing Director of SPO
Partners & Co. ("SPO"), an investment advisory firm and affiliate of the
Partnership. From 1982 to 1991, Mr. Oberndorf was a general partner of San
Francisco Partners II, L.P. Mr. Oberndorf serves as a Director of Bell & Howell
Holdings Company, Inc.

William J. Patterson--Mr. Patterson became a Director of Corp. I in
November 1992 and is Chairman of the Audit and Compliance Committee and a member
of the Compensation Committee of the Board of Directors. Mr. Patterson is a Vice
President of Corp. I. Since 1991, Mr. Patterson's principal occupation has been
as a Managing Director of SPO. From 1989 to 1991, Mr. Patterson was an associate
with San Francisco Partners II, L.P.

John H. Scully--Mr. Scully was elected a Director of Corp. I in November
1992 and is a member of the Compensation Committee of the Board of Directors.
Mr. Scully is President of Corp. I. Since 1991, Mr. Scully's principal
occupation has been as a Managing Director of SPO. From 1969 to 1991, Mr. Scully
was a general partner of San Francisco Partners II, L.P. Mr. Scully serves as a
Director of Bell & Howell Holdings Company, Inc.

William R. Brown--Mr. Brown has been Vice President, Resource Management of
the General Partner since February 22, 1995. From August 1990 to February 1995
he was Director, Planning, for the General Partner and its predecessor, PCMC.

Lindsay G. Crawford--Mr. Crawford was appointed Vice President, Southern
Region, of the General Partner as of October 18, 1996. From December 1994 to
October 1996, he was General Manager - Lumber for the General Partner. From June
1989 to November 1994, he was Director of Operations - Flathead Mills for the
General Partner and its predecessor, PCMC.

Diane M. Irvine--Ms. Irvine has been Vice President and Chief Financial
Officer of the General Partner since February 7, 1994. She was a partner with
Coopers & Lybrand L.L.P. from October 1993 to February 1994 and was a Manager
with Coopers & Lybrand L.L.P. from July 1987 to September 1993.

James A. Kraft--Mr. Kraft has been Vice President, General Counsel and
Secretary of the General Partner since April 30, 1996. He was Vice President,
Law of the General Partner from January 1994 through April 1996. From April 1989
to December 1993, he was Vice President, Law and Corporate Affairs for the
General Partner and its predecessor, PCMC.

63
<PAGE> 64

CONFLICTS OF INTEREST

GENERAL

Certain conflicts of interest could arise as a result of the General
Partner's relationships with Corp. I, on the one hand, and the Partnership,
Manufacturing and Marketing, on the other hand. The board of directors of Corp.
I and the officers of the General Partner have a duty to manage such entities in
the best interests of their shareholders and partners, respectively. As the
general partner of the Partnership, the General Partner has a fiduciary duty to
manage the Partnership in the best interests of Unitholders and, consequently,
must exercise good faith and integrity in handling the assets and affairs of the
Partnership, Manufacturing and Marketing in addition to such other obligations
as it may assume under the Partnership Agreement. In order to ensure that such
standards are met, the Board of Directors of Corp. I has created the Conflicts
Committee which is composed of three directors who are not affiliated with the
General Partner, Corp. I or any of their affiliates (other than through their
positions as directors of Corp. I), and such committee meets as often as deemed
appropriate to review specific transactions, policies and practices of the
Partnership dealing with various matters as to which conflicts of interest may
arise. See "Management -- Executive Officers and Directors."

As general partner of the Partnership and Manufacturing, the General
Partner makes all decisions relating to the management of those entities. In
addition, the General Partner has the ability to designate the executive
officers and directors of Marketing because of the Partnership's ownership of
96% of the outstanding common stock of Marketing. Due to the General Partner's
direct ownership of 4% of the common stock of Marketing, a 2% general partner
interest in Manufacturing, and a 2% general partner interest in the Partnership,
as well as its right to receive incentive distributions if certain levels of
cash distributions to Unitholders are achieved, the General Partner's economic
interest in such entities may result in conflicts of interest in making
determinations that affect the operating performance and cash flows of such
entities. The General Partner is not required to make additional capital
contributions to the Partnership in order to maintain its general partner
interest, including its right to receive incentive distributions, following the
issuance of additional Units.

Conflicts of interest may arise in the situations described below, among
others:

CERTAIN ACTIONS TAKEN BY THE GENERAL PARTNER MAY AFFECT THE AMOUNT OF CASH
AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS

Decisions of the General Partner with respect to, among other things, the
amount and timing of timber harvests, property sales, distributions of Cash from
Capital Transactions, capital contributions to subsidiaries of the Partnership,
cash expenditures, participation in capital expansions and acquisitions,
borrowings, the issuance of additional Units and adjustments made to reserves
affect the amount of cash distributable to Unitholders. The Partnership
Agreement provides that any such actions taken in good faith by the General
Partner will not constitute a breach of any duty owed by the General Partner to
the Partnership or the Unitholders, provided that such actions are deemed to be
fair and reasonable to the Partnership. As a part of the Transactions, a capital
contribution was made by the Partnership to Manufacturing in an amount that,
when added to the proceeds received from the sale of the Arden Sawmill, was
sufficient to allow Manufacturing to acquire the Southern Facilities. The
General Partner is not required to make a corresponding capital contribution to
Manufacturing in order to maintain its general partner interest therein.

TIMBER SUPPLY

Manufacturing is substantially dependent upon the Partnership for a
continuing source of logs from the Timberlands for use as raw materials in the
Conversion Facilities. Similarly, Manufacturing is an important customer for the
timber of the Partnership. As a result, a significant amount of the timber to be
harvested by the Partnership from the Timberlands is sold to Manufacturing and a
substantial portion of the timber required for the operations of Manufacturing
is purchased from the Partnership. Certain conflicts of interest may arise in
connection with such dealings, in particular with respect to determinations of
the prices at which logs are to be sold by the Partnership to Manufacturing, the
timing and amount of timber harvesting, the

64
<PAGE> 65

amount of logs to be made available to Manufacturing and to other customers and
the quality of logs to be sold to Manufacturing. Each quarter, the General
Partner sets prices for log sales from the Partnership to Manufacturing based on
estimates made by the General Partner of fair market values.

With respect to the selection and scheduling of logs to be sold by the
Partnership, the General Partner manages the Timberlands consistent with the
Partnership's need to generate regular cash flow to meet the cash distribution
requirements of the Partnership.

SALE OF MANUFACTURED PRODUCTS

All of the products of Manufacturing are transferred to Marketing for
ultimate sale to third parties. Certain conflicts of interest could arise in
connection with such dealings, in particular with respect to determinations of
the prices at which such products are transferred to Marketing as well as to the
consideration paid to Marketing for the marketing services rendered.
Manufacturing currently transfers its products to Marketing at fair market value
and pays Marketing a 1% commission for its services.

THE PARTNERSHIP REIMBURSES THE GENERAL PARTNER AND ITS AFFILIATES FOR CERTAIN
EXPENSES

Under the terms of the Partnership Agreement, the General Partner and its
affiliates are reimbursed by the Partnership for certain expenses incurred on
behalf of the Partnership, including costs incurred in providing staff and
support services to the Partnership. See "Management."

THE GENERAL PARTNER INTENDS TO LIMIT ITS LIABILITY WITH RESPECT TO THE
PARTNERSHIP'S OBLIGATIONS

Whenever possible, the General Partner intends to limit the Partnership's
liability under contractual arrangements to all or particular assets of the
Partnership, with the other party thereto to have no recourse against the
General Partner or its assets.

UNITS ARE SUBJECT TO THE GENERAL PARTNER'S LIMITED CALL RIGHT

If at any time less than 10% of the then issued and outstanding Units are
held by persons other than the General Partner and its affiliates, the General
Partner will have the right, which it may assign to any of its affiliates or to
the Partnership, to acquire all but not less than all of the remaining Units
held by such unaffiliated persons at specified prices. The General Partner may
use its own discretion in determining whether to exercise such right. As a
consequence of the General Partner's right to purchase outstanding Units, a
Unitholder may be required to sell his Units at a time when he may not desire to
sell them or at a price that is less than the price at which he would be willing
to sell them. See "Summary Description of the Partnership Agreement -- Limited
Call Right."

FIDUCIARY DUTIES OF THE GENERAL PARTNER; INDEMNIFICATION

The General Partner and its affiliates (including Corp. I) are accountable
to the Partnership and the Unitholders as fiduciaries. Consequently, the General
Partner must exercise good faith and integrity in handling the business and
affairs of the Partnership. In contrast to the relatively well developed law
concerning fiduciary duties owed by officers and directors to the shareholders
of a corporation, the law concerning the duties owed by general partners to
other partners and to partnerships is relatively undeveloped. The Delaware
Revised Uniform Limited Partnership Act, as amended (the "Delaware Act"), does
not define with particularity the fiduciary duties owed by general partners, but
fiduciary duties are generally considered to include an obligation to act with
the highest good faith, fairness and loyalty. Such duties would generally
prohibit a general partner of a Delaware limited partnership from taking any
action or engaging in any transaction as to which it has a conflict of interest.
However, the Delaware Act provides that Delaware limited partnerships may, in
their partnership agreements, restrict or expand the fiduciary duties that might
otherwise be applied by a court in analyzing the standard duty owed by general
partners to limited partners. In order to induce the General Partner to manage
the business of the Partnership, the Partnership Agreement, as permitted by the
Delaware Act, contains various provisions that have the effect of restricting
the fiduciary duties that might otherwise be owed by the General Partner and its
affiliates to the Partnership and the

65
<PAGE> 66

Unitholders and waiving or consenting to conduct by the General Partner and its
affiliates that might otherwise raise issues as to compliance with fiduciary
duties or applicable law. In order to ensure that such standards are met, the
Board of Directors of Corp. I has created the Conflicts Committee. See
"-- General."

The Partnership Agreement provides that whenever a conflict of interest
arises between the General Partner or its affiliates, on the one hand, and the
Partnership or any Limited Partners, on the other hand, the General Partner
shall, in resolving such conflict, consider the relative interests of the
parties involved in such conflict, any customary or accepted industry practices,
any applicable generally accepted accounting practices or principles and such
additional factors as the General Partner determines to be relevant, reasonable
or appropriate. The same considerations apply whenever the Partnership Agreement
provides that the General Partner will act in a manner that is fair and
reasonable to the Partnership or the Limited Partners. Thus, unlike the strict
duty of a fiduciary who must act solely in the best interests of his
beneficiary, the Partnership Agreement permits the General Partner to consider
the interests of all parties to a conflict of interest although it is not clear
under Delaware law that such provisions would be enforceable. The Partnership
Agreement also provides that in certain circumstances the General Partner will
act in its sole discretion, in good faith, or pursuant to other appropriate
standards.

The Delaware Act provides that a limited partner may institute legal action
on behalf of a partnership (a partnership derivative action) to recover damages
from a third party where the general partner has refused to institute the action
or where an effort to cause the general partner to do so is not likely to
succeed. In addition, the common or statutory law of some jurisdictions may
permit a limited partner to institute legal action on behalf of himself or all
other similarly situated limited partners (a class action) to recover damages
from a general partner for violations of its fiduciary duties to the limited
partners.

The Partnership Agreement provides that the General Partner will not be
liable to the Partnership, the Unitholders or assignees thereof for errors of
judgment or for any act or omission taken in good faith; however, the extent to
which these provisions would be enforceable under Delaware law is not clear. In
addition, the Partnership is required, under the terms of the Partnership
Agreement, to indemnify the General Partner and its affiliates and their
directors, officers, partners, employees and agents against liabilities, costs
and expenses incurred by the General Partner or other such persons, if the
General Partner or such persons acted in good faith and in a manner they in good
faith believed to be in, or not opposed to, the best interests of the
Partnership. See "Summary Description of the Partnership
Agreement--Indemnification."

The fiduciary obligations of general partners is a developing area of the
law. The provisions of the Delaware Act that allow the fiduciary duties of a
general partner to be waived or restricted by a partnership agreement have not
been tested in a court of law, and the General Partner has not obtained an
opinion of counsel covering the provisions of the Partnership Agreement that
purport to waive or restrict fiduciary responsibilities of the General Partner.
Unitholders should consult their own legal counsel concerning the fiduciary
responsibilities of the General Partner and the officers and directors acting on
its behalf and the remedies available to Unitholders.

66
<PAGE> 67

DESCRIPTION OF THE UNITS

The following discussion of certain provisions of the deposit agreement
among the Partnership, The First National Bank of Boston, a national banking
association (the "Depositary"), the General Partner and the holders of
Depositary Receipts (the "Deposit Agreement"), a copy of which is an exhibit to
the Registration Statement of which this Prospectus is a part, is qualified in
its entirety by reference thereto.

GENERAL

Upon the closing of this offering, the Underwriters will deposit all of the
limited partner interests purchased by them in connection with this offering
with the Depositary in exchange for Units evidenced by Depositary Receipts. Upon
receipt of a properly executed Transfer Application (set forth on the reverse
side of the Depositary Receipt), the Depositary will issue such Depositary
Receipts in registered form to each purchaser of Units in this offering.
Purchasers may hold Units in nominee accounts, provided that the broker (or
other nominee) executes and delivers a Transfer Application and becomes a
Limited Partner.

Generally, the Units are equity securities entitled to participate in such
distributions of Partnership funds as may properly be made from time to time in
the sole discretion of the General Partner and, in the event of any liquidation
or winding up of the Partnership, to share with the General Partner any assets
of the Partnership remaining after satisfaction of Partnership liabilities
pursuant to the terms of the Partnership Agreement. See "Cash Distribution
Policy--Distributions of Cash Upon Liquidation."

The percentage interest represented by a Unit (the "Percentage Interest")
at any time is equal to the ratio that it bears at such time to the total number
of Units outstanding, multiplied by 98%. Each Unit evidences entitlement to
participate in a percentage of the Partnership's income, gains, losses,
deductions, credits and distributions. The amount of a Unitholder's Percentage
Interest will be subject to dilution in the event that the Partnership issues
more Units or issues other securities. The Partnership has the authority to
issue additional limited partner interests and other equity securities of the
Partnership or other securities ranking on a parity with or junior to the Units
without the approval of the Unitholders. Subject to approval of a majority of
the then outstanding Units (excluding Units held by the General Partner and its
affiliates), the General Partner has the authority under the Partnership
Agreement to cause the Partnership to issue additional Units or classes or
series of limited partners' interests ranking senior to the Units as to
distributions, allocations of profit and loss, liquidation and voting rights.
See "Summary Description of the Partnership Agreement--Issuance of Additional
Units and Securities." Other than the 750,000 additional Units that will be
issued if the Underwriters' over-allotment option is exercised in full, the
Partnership has no current intention to issue any additional Units or other
classes or series of limited partner interests.

The Units are registered under the Exchange Act, and the Partnership is
subject to the reporting and proxy solicitation requirements of the Exchange Act
and the rules and regulations thereunder. See "Summary Description of the
Partnership Agreement--Meetings; Voting." The Partnership is required to file
periodic reports containing financial and other information with the SEC.

TRANSFER OF UNITS

The Units evidenced by Depositary Receipts are freely transferable, except
as restricted by federal or state securities laws. Until a Unit has been
transferred on the books of the Depositary, the Depositary and the Partnership
will treat the record holder thereof as the absolute owner for all purposes. A
transfer of a Unit will not be registered by the Depositary or recognized by the
Partnership unless the transferee executes and delivers a Transfer Application.
Units evidenced by Depositary Receipts are securities and are transferable
according to the laws governing transfers of securities. By executing and
delivering the Transfer Application, the transferee is deemed to have requested
admission as a Substituted Limited Partner in the Partnership, agreed to be
bound by the terms and conditions of and executed the Partnership Agreement and
the Deposit Agreement, represented that he has authority to enter into the
Partnership Agreement and the Deposit Agreement, granted powers of attorney to
the General Partner and any liquidator of the Partnership and made the consents
and waivers contained in the Partnership Agreement. Unless and until admitted as
a Limited Partner pursuant to the Partnership Agreement, such transferee has the
rights of an Assignee as set forth

67
<PAGE> 68

therein. A purchaser or other transferee who does not execute and deliver a
Transfer Application obtains only (a) the right to assign the Depositary Receipt
to a purchaser or other transferee and (b) the right to transfer the right to
seek admission as a Substituted Limited Partner in the Partnership with respect
to the transferred Units. Thus, such purchaser or transferee will not receive
cash distributions, federal income tax allocations or reports furnished to
record holders of Units. Whether or not a transferee executes the Transfer
Application, a transferee, by acceptance of the Depositary Receipt, is deemed to
become a party to the Deposit Agreement and bound by its terms and conditions.
The transferor will have the duty to provide such transferee with all
information that may be necessary to obtain registration of the transfer of a
Unit. See "Summary Description of the Partnership Agreement--Status as Limited
Partner or Assignee."

If because of the nationality or other status of any Limited Partner or
Assignee, the Partnership is or becomes subject to federal, state or local laws
or regulations that would create a substantial risk of cancellation or
forfeiture of any property in which the Partnership has an interest, the General
Partner may request any such Limited Partner or Assignee to furnish to the
General Partner or, with respect to Depositary Receipts, to the Depositary
within 30 days after receipt of such request an executed Citizenship
Certification or such other information concerning his nationality, citizenship
or other status (or, if the Limited Partner or Assignee is a nominee holding for
the account of another person, the nationality, citizenship or other status of
such person) as the General Partner may request. If the Limited Partner or
Assignee fails to furnish such information or if the General Partner determines,
with the advice of counsel, on the basis of the information furnished by such
holder in response to the request, that a Limited Partner or Assignee is not
qualified to own real property in jurisdictions in which the Partnership does
business or subjects the Partnership to a substantial risk of cancellation or
forfeiture of any property in which the Partnership has an interest, the General
Partner may be substituted as the limited partner for such record holder, who
will then be treated as a Non-citizen Assignee, and the General Partner will
have the right to redeem the Units held by such record holder. See "Summary
Description of the Partnership Agreement--Non-citizen Assignees; Redemption."

WITHDRAWAL OF UNITS

Upon the written request of a Limited Partner for withdrawal of Units from
deposit and the surrender of his Depositary Receipt in compliance with the terms
of the Deposit Agreement, the Depositary will request from the Partnership and
deliver to the Limited Partner a certificate representing the withdrawn Limited
Partner interests previously represented by Units. Units withdrawn from the
Depositary are not transferable, except by bequest or transfer upon death or
operation of law; provided, however, that the General Partner or its affiliates
may transfer Units between or among themselves without restriction (except with
respect to distribution rights), and any Limited Partner may transfer Units to
the Partnership or the General Partner. In order to transfer the Units so
withdrawn, a Unitholder must redeposit such Limited Partner interests with the
Depositary by delivering the certificate representing such Limited Partner
interests to the Depositary and must request a Depositary Receipt evidencing
Units, which may then be transferred. Redeposit of such Units with the
Depositary will require 60 days' advance written notice (except for redeposit by
the Partnership or its affiliates, which will not require any prior notice) and
may be subject to certain other restrictions.

RESIGNATION AND REMOVAL OF DEPOSITARY

The Depositary may at any time resign or be removed by the Partnership, in
which case a qualified successor will be appointed by the Partnership. If no
successor is appointed within 30 days after such resignation, the General
Partner is authorized to act as the Depositary until such time as the
Partnership appoints a successor Depositary.

AMENDMENT

Any provisions of the Deposit Agreement, including the form of Depositary
Receipt or Transfer Application, may at any time and from time to time be
amended by agreement between the Partnership and the Depositary in any respect
deemed necessary or desirable by them, without approval by the Unitholders. No
amendment to the Deposit Agreement may impair the right of a Limited Partner in
the Partnership to surrender a Depositary Receipt and withdraw his Units, and no
amendment to the Deposit Agreement may be

68
<PAGE> 69

made without the approval of the General Partner. The Depositary will furnish
notice to any securities exchange on which Units are listed for trading and to
each record holder of a Depositary Receipt at the time any material amendment of
the Deposit Agreement becomes effective, and each such holder will be deemed, by
continuing to hold such Depositary Receipt, to consent and agree to such
amendment and to be bound by the Deposit Agreement as so amended.

The Depositary must give notice of the imposition of any fee or charge
(other than fees and charges provided for in the Deposit Agreement), or change
therein, upon holders or transferees of Units to all record holders of
Depositary Receipts and to any securities exchange upon which the Units are or
may be listed or admitted to trading. The imposition of such fee or charge, or
change therein, shall not be effective until the expiration of 90 days after the
date of such notice, unless it earlier becomes effective in the form of any
amendment to the Deposit Agreement effected by the Partnership and the
Depositary.

TERMINATION

The Depositary will terminate the Deposit Agreement, whenever directed to
do so by the Partnership, by mailing notice of termination to the record holders
of the Units then outstanding at least 30 days before the date fixed for
termination in the notice.

DUTIES AND STATUS OF DEPOSITARY

The Depositary's only duties as Depositary are the essentially ministerial
ones set forth in the Deposit Agreement. In addition to acting as depositary for
the Units, the Depositary acts as a registrar and transfer agent for the Units.
The Depositary receives a fee from the Partnership for serving in such
capacities. The Partnership will indemnify the Depositary and its agents against
all claims that may arise out of acts performed or omitted in respect of the
Deposit Agreement except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the Depositary or any of its
agents.

All fees charged by the Depositary for transfers and withdrawals of Units
will be borne by the Partnership and not by the holders of Depositary Receipts
(except that fees similar to those customarily paid by stockholders for surety
bond premiums to replace lost or stolen certificates, taxes or other
governmental charges, special charges for services requested by a holder of a
Depositary Unit, including redeposit of withdrawn Units, and other similar fees
or charges will be borne by the affected Unitholder). There will be no charge to
holders of Units for disbursements of the Partnership's cash distributions.

69
<PAGE> 70

SUMMARY DESCRIPTION OF THE PARTNERSHIP AGREEMENT

The following paragraphs summarize certain provisions of the Partnership
Agreement of the Partnership. A copy of the Partnership Agreement may be
obtained from the Partnership upon request. See "Incorporation of Certain
Documents." Capitalized terms used in the following discussion not otherwise
defined herein are used as defined in the Partnership Agreement. The following
discussion is qualified in its entirety by reference to the Partnership
Agreement.

Certain provisions of the Partnership Agreement are summarized elsewhere in
this Prospectus under various headings. With regard to various transactions and
relationships of the Partnership with the General Partner and its affiliates,
see "Conflicts of Interest"; with regard to the management of the Partnership
and its subsidiaries, see "Management"; with regard to the transfer of Units,
see "Description of the Units"; with regard to distributions of cash, see "Cash
Distribution Policy"; and with regard to allocations of taxable income and
taxable loss, see "Tax Considerations." Prospective investors are urged to
review these sections of this Prospectus and the Partnership Agreement
carefully.

ORGANIZATION AND DURATION

The Partnership was organized in 1989 as a Delaware limited partnership.
The General Partner is the general partner of the Partnership. The Partnership
will dissolve on December 31, 2047, unless sooner dissolved pursuant to the
terms of the Partnership Agreement.

PURPOSE

The purpose of the Partnership under the Partnership Agreement is to
conduct any business permitted under Delaware law including, but not limited to,
the acquisition, development, ownership, management, operation, leasing and
disposition of timberlands, and the production and sale of forest products. The
General Partner is authorized in general to perform all acts it deems necessary
to carry out such purposes and to conduct the business of the Partnership.

POWER OF ATTORNEY

Each Limited Partner of the Partnership, and each person who acquires a
Unit from a prior holder and executes and delivers a Transfer Application with
respect thereto, is deemed to have granted to the General Partner and, if a
liquidator has been appointed, the liquidator, a power of attorney to, among
other things, execute and file certain documents required in connection with the
qualification, continuance or dissolution of the Partnership, or the amendment
of the Partnership Agreement and to give the consents and waivers pursuant to
the terms of the Partnership Agreement.

REIMBURSEMENT

The Partnership reimburses the General Partner for all direct and indirect
expenses and payments it incurs on behalf of the Partnership and the allocable
portion of fees and expenses that the General Partner incurs or makes on behalf
of the Partnership. The General Partner, in a reasonable manner in its sole
discretion, determines the allocable fees and expenses. The General Partner may
also, in its sole discretion, subject only to the limitations on issuance of
additional Units and other securities (see "--Issuance of Additional Units and
Securities"), adopt on behalf of the Partnership employee benefit plans for the
benefit of employees of the General Partner, the Partnership, any subsidiary or
any affiliate of any of them, in connection with services performed for the
benefit of the Partnership or any subsidiary.

RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER

The activities of the General Partner are limited by the Partnership
Agreement to the management of the activities and operations of the Partnership.
The authority of the General Partner is limited in certain respects under the
Partnership Agreement. Except as otherwise provided in the Partnership
Agreement, the General Partner is prohibited, without the written approval of
all of the Limited Partners, from taking any action in

70
<PAGE> 71

contravention of the Partnership Agreement, including, among other things, (i)
taking any action that would make it impossible to carry on the ordinary
business of the Partnership; (ii) possessing Partnership property, or assigning
any rights in specific Partnership property, for other than a Partnership
purpose; (iii) admitting a person as a Partner; (iv) amending the Partnership
Agreement in any manner; or (v) transferring its interest as General Partner of
the Partnership. In addition, the General Partner may not, without the approval
of at least a majority of the outstanding Units (excluding Units owned by the
General Partner and its affiliates), sell, exchange or otherwise dispose of all
or substantially all of the Partnership's assets in a single transaction or a
series of related transactions or approve on behalf of the Partnership the sale,
exchange or other disposition of all or substantially all of the assets of
Manufacturing, provided that the Partnership may mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the Partnership's
assets without such approval and the above restrictions do not apply to any
forced sale of any or all of the Partnership's assets pursuant to the
foreclosure of, or other realization upon, any such encumbrance. The General
Partner is also prohibited from taking any action, or refusing to take any
reasonable action, the effect of which action taken or not taken, as the case
may be, would be to cause the Partnership to be treated as an association
taxable as a corporation for federal income tax purposes without the consent of
at least 66 2/3% of each class of outstanding Units, and the vote of at least a
majority of outstanding Units (excluding any Units owned by the General Partner
and its affiliates). While serving as general partner of the Partnership, the
General Partner may not take any action, including, without limitation, making a
dividend or distribution or repurchasing stock, if the effect of such action
would be to reduce the General Partner's net worth below an amount necessary, in
the opinion of counsel, for the Partnership to be treated as a partnership for
federal income tax purposes.

WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER

The General Partner has agreed not to voluntarily withdraw as general
partner prior to January 1, 2000 (with limited exceptions described below).
However, the General Partner may withdraw before such time by giving at least 90
days' advance written notice, provided that, prior to the effective date of such
withdrawal, the Limited Partners approve such withdrawal by the vote of at least
66 2/3% of the outstanding Units (excluding Units owned by the General Partner
and its affiliates). On or after January 1, 2000, the General Partner may
withdraw by giving at least 90 days' advanced written notice, and such
withdrawal will not constitute a breach of the Partnership Agreement.
Notwithstanding the foregoing, the General Partner may withdraw without such
Limited Partner approval upon 90 days' notice to the Limited Partners if more
than 50% of the outstanding Units not held by the General Partner and its
affiliates are owned beneficially or of record or controlled by one person or
its affiliates. In addition, the Partnership Agreement permits the General
Partner (in certain limited circumstances) to sell or otherwise transfer all of
its general partner interest in the Partnership without the approval of the
Unitholders. See "-- Transfer of General Partner Interests."

If the General Partner withdraws by giving written notice or if the General
Partner is removed by the requisite vote of Limited Partners, holders of at
least a majority of the outstanding Units (excluding Units owned by the General
Partner and its affiliates) may, prior to the effective date of the General
Partner's withdrawal or removal, elect a successor General Partner. If, prior to
the effective date of the General Partner's withdrawal or removal, the Limited
Partners do not select a successor, or the Partnership does not obtain an
opinion of counsel that the General Partner's withdrawal would not result in the
loss of limited liability of the Limited Partners or cause the Partnership to be
treated as a corporation or as an association taxable as a corporation for
federal income tax purposes, the Partnership will be dissolved after such
withdrawal or removal unless within 90 days after such withdrawal or removal all
partners agree to continue the business of the Partnership and appoint a
successor General Partner and, within an additional 90 days at least 66 2/3% of
the outstanding Units elect to reconstitute the Partnership and continue its
business on the same terms and conditions set forth in the Partnership
Agreement.

The General Partner may not be removed unless such removal is approved by
the written consent or affirmative vote of the holders of at least 66 2/3% of
the outstanding Units (excluding Units held by the General Partner and its
affiliates), subject to the satisfaction of certain conditions. Any such removal
must also provide for the election and succession of a new General Partner. The
right of the Limited Partners to remove the

71
<PAGE> 72

General Partner shall not exist or be exercised unless the Partnership has
received an opinion of counsel that such removal and the selection of a
successor will not result in the loss of the limited liability of the
Partnership or any Limited Partner or cause the Partnership to be treated as a
corporation or an association taxable as a corporation for federal income tax
purposes. If such selection of a successor general partner or receipt of an
opinion of counsel do not occur, the Partnership will be dissolved.

In the event of (i) withdrawal of the General Partner under circumstances
where such withdrawal does not violate the Partnership Agreement or (ii) removal
of the General Partner by the Limited Partners under circumstances where "cause"
does not exist, the General Partner would have the option to require a successor
general partner to acquire the general partner interest of the departing General
Partner (the "Departing Partner") for a cash payment equal to the fair market
value of such interest, such amount to be determined and payable as of the
effective date of its departure. If the General Partner withdraws as a general
partner of the Partnership under circumstances where such withdrawal violates
the Partnership Agreement, or if the General Partner is removed by the Limited
Partners under circumstances where cause exists, a successor general partner
would have the option to acquire such partner interest in accordance with the
preceding sentence and the Departing Partner would not have such option. For
purposes of the foregoing, "cause" means that a court of competent jurisdiction
has entered a final, non-appealable judgment finding the General Partner liable
for actual fraud, gross negligence or willful or wanton misconduct in its
capacity as general partner of the Partnership. The fair market value will be
determined by agreement between the Departing Partner and its successor, or, if
no agreement is reached, by an independent investment banking firm or other
independent expert selected by the Departing Partner and its successor (or, if
no expert can be agreed upon, by an expert chosen by the expert selected by the
Departing Partner and its successor). Regardless of whether the General Partner
is removed with or without cause, the Partnership would also be required to
reimburse the Departing Partner for all reimbursements due the General Partner
described in "--Reimbursement" above, including any employee-related
liabilities, including severance liabilities, incurred in connection with the
termination of the employees employed by the Departing Partner for the benefit
of the Partnership.

If the successor general partner does not acquire the Departing Partner's
partnership interest in the manner referred to in the previous paragraph, the
Departing Partner would become a Limited Partner and its partnership interest,
valued as described in the previous paragraph, would be converted into Units. If
the option described in the preceding paragraph is not exercised by the party
entitled to do so, the successor General Partner would be required, at the
effective date of its admission to the Partnership, to contribute to the capital
of the Partnership cash in an amount such that its capital account, after giving
effect to such contribution and any adjustments made to the capital accounts of
all partners pursuant to the terms of the Partnership Agreement, would be equal
to that percentage of the capital accounts of all partners that is equal to its
Percentage Interest as the General Partner.

TRANSFER OF GENERAL PARTNER INTERESTS

The General Partner may transfer all, but not less than all, of its
interest in the Partnership to a single transferee if, but only if, (i) the
holders of at least 66 2/3% of the outstanding Units (excluding Units owned by
the General Partner and its affiliates) approves of such transfer and of the
admission of such transferee as General Partner, (ii) the transferee agrees to
assume and be bound by the provisions of the Partnership Agreement and (iii) the
Partnership receives an opinion of counsel that such transfer would not result
in the loss of limited liability of any Limited Partner or the taxation of the
Partnership as a corporation or as an association taxable as a corporation for
federal income tax purposes. In addition, the General Partner may transfer all
of its interest in the Partnership without the approval of the Limited Partners
upon its merger, consolidation or other combination into another entity or the
transfer of all or substantially all of its assets to another entity, to such
entity, provided in either case that such entity assumes the rights and duties
of the General Partner and furnishes an opinion of counsel that such transfer
would not result in the loss of the limited liability of any Limited Partner or
cause the Partnership to be taxable as a corporation or an association taxable
as a corporation for federal income tax purposes.

72
<PAGE> 73

STATUS AS LIMITED PARTNER OR ASSIGNEE

Except as described under "--Limited Liability," Units are fully paid, and
Limited Partners will not be required to make additional contributions to the
Partnership. No Limited Partner is entitled to withdrawal or return of cash or
assets contributed to the Partnership. No Limited Partner or Assignee may take
part in the operation, management or control of the Partnership's business.

Each purchaser of Units offered hereby must execute a transfer application
requesting admission as and agreeing to become a Substituted Limited Partner in
the Partnership. If such action is not taken, a purchaser will not be registered
as a record holder of Units on the books of the Depositary or issued a Unit.
Purchasers may hold Units in nominee accounts. See "Description of the
Units--Transfer of Units" for a more complete description of the requirements
for the transfer of Depositary Units and Depositary Receipts.

An Assignee, pending its admission by the General Partner as a Substituted
Limited Partner in the Partnership, is entitled to an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions of the Partnership, including liquidating distributions. With
respect to voting rights attributable to Units that are held by Assignees, the
General Partner will be deemed to be the Limited Partner with respect thereto
and will, in exercising the voting rights in respect of such Units on any
matter, vote such Units at the written direction of the Assignee who is the
record holder of such Units. See "--Meetings; Voting" below. Transferees who do
not execute and deliver a Transfer Application will be treated neither as
Assignees nor as record holders of Units, and will not receive allocations, cash
distributions or reports furnished to record holders of Units. The only right
such transferees will have is the right to negotiate the Depositary Receipts
representing such Units to a purchaser or other transferee and the right to
transfer the right to request admission as a Limited Partner in respect of the
transferred Depositary Receipts to a purchaser or other transferee. A nominee or
broker who has executed a Transfer Application with respect to Units held in
street name or nominee accounts will receive such allocations, distributions and
reports pertaining to such Units.

NON-CITIZEN ASSIGNEES; REDEMPTION

If the Partnership is or becomes subject to federal, state or local laws or
regulations that would create a substantial risk of cancellation or forfeiture
of any property in which the Partnership has an interest because of the
nationality or other status of any Limited Partner or Assignee, the General
Partner may request any such Limited Partner or Assignee to furnish to the
General Partner or, with respect to Depositary Receipts, to the Depositary
within 30 days after receipt of such request an executed Citizenship
Certification or such other information concerning his nationality, citizenship
or other status (or, if the Limited Partner or Assignee is a nominee holding for
the account of another person, the nationality, citizenship or other status of
such person) as the General Partner may request. If a Limited Partner or
Assignee fails to furnish such Citizenship Certification or other information
within 30 days after a request therefor, or if the General Partner determines,
with the advice of counsel, that a Limited Partner or Assignee is not qualified
to own real property in jurisdictions in which the Partnership does business or
subjects the Partnership to a substantial risk of cancellation or forfeiture of
any property in which it has an interest, then the Units owned by such Limited
Partner or Assignee shall be subject to redemption and such Limited Partner or
Assignee may be treated as a Non-citizen Assignee. The Partnership Agreement
sets forth the rights of such a Limited Partner or Assignee upon redemption.
Pending such redemption or in lieu thereof, the General Partner may change the
status of any such Limited Partner or Assignee to that of a Non-citizen
Assignee. In addition to other limitations on the rights of an Assignee who is
not a Substituted Limited Partner, a Non-citizen Assignee does not have the
right to direct the voting of his Units and may not receive distributions in
kind upon liquidation of the Partnership. See "--Status as Limited Partner or
Assignee."

ISSUANCE OF ADDITIONAL UNITS AND SECURITIES

The Partnership Agreement authorizes the General Partner to cause the
Partnership to issue an unlimited number of additional limited partner interests
and other equity securities of the Partnership ("Additional Units") for such
consideration and on such terms and conditions as shall be established by the
General

73
<PAGE> 74

Partner. The Partnership may issue (i) Additional Units or other Partnership
securities ranking on a parity with or junior to the Units with respect to
distributions, income or losses or upon liquidation, without the approval of the
Units or (ii) Partnership securities ranking senior to the Units in priority of
distributions or allocations prior to or upon liquidation, with the approval of
the holders of a majority of the outstanding Units (except Units owned by the
General Partner and its affiliates). See "Conflicts of Interest."

LIMITED CALL RIGHT

If at any time less than 10% of the outstanding Units are held by persons
other than the General Partner and its affiliates, the General Partner will have
the right, which it may assign and transfer to any affiliate or the Partnership,
to purchase all, but not less than all, of the outstanding Units held by such
unaffiliated persons as of a record date to be selected by the General Partner,
on at least ten, but not more than 60 days' notice. The purchase price in the
event of such a purchase shall be the greater of (a) the current market price as
of the date of such notice, (b) the initial price per unit at which the Units
were offered for public sale and (c) the highest cash price paid by the General
Partner for any Unit purchased within 90 days preceding the date of such notice.
As a consequence of the General Partner's right to purchase outstanding Units, a
Unitholder may be required to sell his Units at a time when he may not desire to
sell them or at a price that is less than the price at which he would be willing
to sell them. The tax consequences to a Unitholder of the exercise of this call
right are the same as a sale by such Unitholder of his Units on the market.

AMENDMENT OF PARTNERSHIP AGREEMENT

Amendments to the Partnership Agreement may be proposed solely by the
General Partner. In order to adopt an amendment, the General Partner is required
to seek the written approval of the holders of the number of Units required to
approve such amendment or call a meeting of the Limited Partners to consider and
vote on such proposed amendment, except as described below. Proposed amendments
(unless otherwise specified) must be approved by at least 66 2/3% of the
outstanding Units, except that no amendment may be made which would (i) enlarge
the obligations of any Limited Partner, (ii) modify the compensation payable to
the General Partner or any of its affiliates by the Partnership, (iii) change
the term of the Partnership or the vote required to wind up the affairs of the
Partnership, (iv) restrict any action by or rights of the General Partner or (v)
give any person the right to dissolve the Partnership other than the General
Partner's right to dissolve the Partnership with the approval of 66 2/3% of
outstanding Units.

The General Partner has broad discretion to amend the Partnership Agreement
without the approval of any Limited Partner or Assignee to reflect (i) a change
in the name of the Partnership, the location of the principal place of business
of the Partnership, the registered agent or the registered office of the
Partnership, (ii) admission, substitution, withdrawal or removal of Partners in
accordance with the Partnership Agreement, (iii) a change that, in the sole
discretion of the General Partner, is reasonable and necessary to qualify or
continue the qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability under the laws
of any state or that is necessary or advisable in the opinion of the General
Partner to ensure that the Partnership will not be taxable as a corporation or
treated as an association taxable as a corporation for federal income tax
purposes, (iv) a change (a) that, in the sole discretion of the General Partner,
does not adversely affect the Limited Partners in any material respect, (b) that
is necessary or desirable to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute (including, without limitation, the Delaware Act) or that is necessary
or desirable to facilitate the trading of the Depositary Units (including,
without limitation, the division of outstanding Units into different classes in
order to facilitate uniformity of tax consequences within such classes of Units)
or comply with any rule, regulation, guideline or requirement of any national
securities exchange on which the Depositary Units are or will be listed for
trading, compliance with any of which the General Partner determines in its sole
discretion to be in the best interests of the Partnership and the Limited
Partners or (c) that is required to effect the intent of the provisions of the
Partnership Agreement or is otherwise contemplated by the Partnership Agreement,
(v) an amendment that is necessary, in the opinion of counsel to the
Partnership, to prevent the Partnership or the General Partner or its directors
or officers from in any manner being subjected

74
<PAGE> 75

to the provisions of the Investment Company Act of 1940, as amended, the
Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted
under the Employee Retirement Income Security Act of 1974, as amended, whether
or not substantially similar to plan asset regulations currently applied or
proposed by the United States Department of Labor, (vi) subject to the
limitations on the issuance of additional Units or other limited or general
partner interests described above, an amendment that the General Partner
determines in its sole discretion to be necessary or desirable in connection
with the authorization for issuance of any class or series of Units, (vii) any
amendment expressly permitted in the Partnership Agreement to be made by the
General Partner acting alone, (viii) an amendment effected, necessitated or
contemplated by a Merger Agreement approved in accordance with the Partnership
Agreement or (ix) any other amendments similar to the foregoing.

The General Partner will not be required to obtain an opinion of counsel in
the event of the amendments in the preceding paragraph. No other amendments to
the Partnership Agreement will become effective without the approval of the
record holders of all Units unless the Partnership obtains an opinion of counsel
to the effect that such amendment will not (i) cause the Partnership to become
taxable as a corporation or treated as an association taxable as a corporation
for federal income tax purposes and (ii) affect the limited liability of any
Limited Partner in the Partnership under applicable law.

Any amendment that would have a material adverse effect on the holders of
any class of outstanding Units must be approved by the holders of not less than
66 2/3% of the outstanding Units of such class. Any amendment that reduces the
voting percentage required to take any action is required to be approved by the
affirmative vote of partners constituting not less than the voting requirement
sought to be reduced.

MEETINGS; VOTING

Record holders of Units on the record date set pursuant to the Partnership
Agreement will be entitled to notice of, and to vote at, meetings of Limited
Partners of the Partnership and to act with respect to matters as to which
approvals may be solicited. With respect to voting rights attributable to Units
that are owned by Assignees who have not yet been admitted as Limited Partners,
the General Partner shall be deemed to be the Limited Partner with respect
thereto and shall, in exercising the voting rights in respect of such Units on
any matter, vote such Units at the written direction of the Assignee. Absent
such direction, such Units will not be voted.

Except as may be necessitated by any transaction described in "Cash
Distribution Policy--General," the General Partner does not anticipate that any
meeting of Limited Partners will be called in the foreseeable future. Any action
that is required or permitted to be taken by the Limited Partners may be taken
either at a meeting of the Limited Partners or without a meeting if consents in
writing setting forth the action so taken are signed by holders of such number
of Units as would be necessary to authorize such action at a meeting of the
Limited Partners. Meetings of the Limited Partners may be called by the General
Partner or by Limited Partners owning at least 20% of the outstanding Units of
the class for which a meeting is proposed. Limited Partners may vote either in
person or by proxy at meetings. Outstanding Units representing at least 66 2/3%
or a lesser percentage if the action to be taken may be approved by a lesser
vote, of the class for which a meeting is to be held represented in person or by
proxy will constitute a quorum at a meeting of such class of Limited Partners.
Except for certain amendments to the Partnership Agreement, substantially all
matters submitted for a vote are to be determined by the affirmative vote, in
person or by proxy, of holders of at least 66 2/3% of the outstanding Units.

Each record holder of a Unit has a vote according to his Percentage
Interest in the Partnership. Additional Units having special voting rights could
be issued by the General Partner without the approval of the Limited Partners.
The Partnership Agreement provides that Units held in nominee or street name
accounts will be voted by the broker (or other nominee) pursuant to the
instructions of the beneficial owner unless the arrangement between the
beneficial owner and his nominee provides otherwise.

Any notice, demand, request, report or proxy materials required or
permitted to be given or made to record holders of Units (whether or not any
such record holder has been admitted as a Limited Partner) under the terms of
the Partnership Agreement will be delivered to the record holder by the
Partnership or by the

75
<PAGE> 76

Depositary at the request of the Partnership. Holders of undeposited limited
partner interests will also receive from the Partnership such notices, demands,
requests, reports or proxy materials.

INDEMNIFICATION

The Partnership Agreement provides that the Partnership will, to the
fullest extent permitted by law, indemnify and hold harmless the General
Partner, any Departing Partner, any person who is or was an affiliate of the
General Partner or any Departing Partner, any person who is or was an officer,
director, employee, agent or trustee of the General Partner or any Departing
Partner or any affiliate of the General Partner or any Departing Partner or any
person who is or was serving at the request of the General Partner or any
Departing Partner or any affiliate of the General Partner or any Departing
Partner as an officer, director, employee, agent or trustee of another person
(collectively, "Indemnitees") from and against any and all losses, claims,
damages, liabilities (joint or several), expenses (including legal fees and
expenses), judgments, fines, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
the General Partner, a Departing Partner or any affiliate of either, an
employee, partner, agent or trustee of the General Partner, any Departing
Partner or any affiliate of either or a person serving at the request of the
Partnership in another entity in a similar capacity, provided that in each case
the Indemnitee acted in good faith and in a manner which such Indemnitee
believed to be in, or not opposed to, the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
acted in a manner contrary to that specified above. Any indemnification under
these provisions will be only out of the assets of the Partnership. To the
fullest extent permitted by law, expenses (including legal fees and expenses)
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Partnership prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
so indemnified. The Partnership is authorized to purchase insurance against
liabilities asserted against and expenses incurred by the General Partner and
such other persons as the General Partner shall determine in connection with the
Partnership's activities, whether or not the Partnership would have the power to
indemnify such persons against such liabilities. No Indemnitee will be liable
for monetary damages to the Partnership or any person with an interest in the
Units for losses sustained or liabilities incurred as a result of any act or
omission made in good faith.

LIMITED LIABILITY

Assuming that a Limited Partner does not take part in the control of the
business of the Partnership within the meaning of the Delaware Act and that he
otherwise acts in conformity with the provisions of the Partnership Agreement,
his liability under the Delaware Act will be limited, subject to certain
possible exceptions, generally to the amount of capital he is obligated to
contribute to the Partnership in respect of his Units plus his share of any
undistributed profits and assets of the Partnership. If it were determined,
however, that the right or exercise of the right by the Limited Partners as a
group to remove or replace the General Partner, to approve certain amendments to
the Partnership Agreement or to take other actions pursuant to the Partnership
Agreement constituted "participation in the control" of the Partnership's
business for the purposes of the Delaware Act, then the Limited Partners could
be held personally liable for the Partnership's obligations under the laws of
the State of Delaware to the same extent as the General Partner with respect to
persons who transact business with the Partnership reasonably believing, based
on the Limited Partner's conduct, that the Limited Partner is a general partner.

Under the Delaware Act, a limited partnership may not make a distribution
to a partner to the extent that at the time of the distribution, after giving
effect to the distribution, all liabilities of the partnership, other than
liabilities to partners on account of their partnership interests and
nonrecourse liabilities, exceed the fair value of the assets of the limited
partnership. For the purpose of determining the fair value of the assets of a
limited

76
<PAGE> 77

partnership, the Delaware Act provides that the fair value of property subject
to nonrecourse liability shall be included in the assets of the limited
partnership only to the extent that the fair value of that property exceeds that
nonrecourse liability. The Delaware Act provides that a limited partner who
receives such a distribution and who knew at the time of the distribution that
the distribution was in violation of the Delaware Act shall be liable to the
limited partnership for the amount of the distribution for a period of three
years from the date of the distribution. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for the
obligations of his assignor to make contributions to the partnership, except
that the assignee is not obligated for liabilities unknown to him at the time he
became a limited partner and which could not be ascertained from the partnership
agreement.

The Partnership currently conducts business in Idaho, Montana and
Washington and, following the consummation of the Riverwood Acquisition, will
also conduct business in Arkansas, Louisiana and Texas and may conduct business
in other states. Maintenance of limited liability will require compliance with
legal requirements in such jurisdictions in which the Partnership conducts
business. Limitations on the liability of limited partners for the obligations
of a limited partnership have not been clearly established in many
jurisdictions. If it were determined that the Partnership was conducting
business in any state without compliance with the applicable limited partnership
statute, or that the right or exercise of the right by the Limited Partners as a
group to remove or replace the General Partner, to make certain amendments to
the Partnership Agreement, or to take other action pursuant to the Partnership
Agreement constituted "participation in the control" of the Partnership's
business for the purposes of the statutes of any relevant jurisdiction, then the
Limited Partner could be held personally liable for the Partnership's
obligations under the law of such jurisdiction to the same extent as the General
Partner under certain circumstances. The Partnership will operate in such manner
as the General Partner deems reasonable and necessary or appropriate to preserve
the limited liability of the Limited Partners.

BOOKS AND REPORTS

The General Partner is required to keep appropriate books of the business
at the principal offices of the Partnership. The books will be maintained for
financial reporting purposes on an accrual basis in accordance with generally
accepted accounting principles. The fiscal year of the Partnership is the
calendar year.

As soon as practicable, but in no event later than 120 days after the close
of each calendar year, the General Partner will cause to be mailed to each
record holder of a Unit (as of a date selected by the General Partner) an annual
report containing audited financial statements of the Partnership for the past
fiscal year, prepared on the accrual basis in accordance with generally accepted
accounting principles. As soon as practicable, but in no event later than 45
days after the close of each calendar quarter (except the fourth quarter), the
General Partner will cause to be mailed to each record holder of a Unit (as of a
date selected by the General Partner) unaudited financial statements prepared in
the same manner and such other information as may be required by applicable law,
regulation or rule of any national securities exchange on which the Units are
listed for trading.

The General Partner will use all reasonable efforts to furnish each record
holder of a Unit information required for federal and state tax reporting
purposes within 90 days after the close of each taxable year of the Partnership.
Such information is expected to be furnished in a summary form so that certain
complex calculations normally required of partners can be avoided. The General
Partner's ability to furnish such summary information to Unitholders will depend
on the cooperation of such Unitholders in supplying certain information to the
General Partner. Every Unitholder (without regard to whether he supplies such
information to the General Partner) will receive information to assist him in
determining his federal and state tax liability and filing his federal and state
income tax returns.

RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS

The Partnership Agreement provides that a Limited Partner can, for a
purpose reasonably related to such Limited Partner's interest as a limited
partner of the Partnership, upon reasonable demand and at his own expense, have
furnished to him (i) a current list of the name and last known address of each
Partner, (ii) a copy of the Partnership's federal, state and local tax returns,
(iii) information as to the amount of cash, and a description and statement of
the agreed value of any other property or other asset, contributed or to be

77
<PAGE> 78

contributed by each Partner and the date on which each became a Partner, (iv)
copies of the Partnership Agreement, the certificate of limited partnership of
the Partnership, amendments thereto and powers of attorney pursuant to which the
same have been executed, (v) information regarding the status of the
Partnership's business and financial condition, and (vi) such other information
regarding the affairs of the Partnership as is just and reasonable. The General
Partner may, and intends to, keep confidential from the Limited Partners trade
secrets or other information the disclosure of which the General Partner
believes in good faith is not in the best interests of the Partnership or which
the Partnership is required by law or by agreements with third parties to keep
confidential.

MERGER

The Partnership may merge or consolidate with one or more corporations,
business trusts or associations or other types of entities, as provided in the
Partnership Agreement. Merger or consolidation of the Partnership requires the
approval of the General Partner and at least 66 2/3% of the outstanding Units of
each class, unless the merger agreement contains any provision that, if
contained in an amendment to the Partnership Agreement, would require, under the
Partnership Agreement or the Delaware Act, the approval of a greater Percentage
Interest of Unitholders.

TERMINATION, DISSOLUTION AND LIQUIDATION

The Partnership will continue until December 31, 2047, unless sooner
terminated pursuant to the Partnership Agreement. The Partnership will be
dissolved upon (i) the election of the General Partner to dissolve the
Partnership if approved by the holders of at least 66 2/3% of the outstanding
Units (excluding Units held by the General Partner and its affiliates), (ii) the
sale of all or substantially all of the assets and properties of the
Partnership, (iii) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Act, or (iv) the
withdrawal or removal of the General Partner (including, but not limited to,
withdrawal by reason of the bankruptcy or dissolution of the General Partner) in
accordance with the terms of the Partnership Agreement, provided that the
Partnership shall not be dissolved upon an event described in clause (iv) if the
General Partner gives a notice of withdrawal or is removed pursuant to the terms
of the Partnership Agreement and the holders of at least a majority of the Units
(excluding Units owned by the General Partner and its affiliates) elect a
successor General Partner, which successor is admitted immediately prior to the
effective time of the withdrawal. Upon a dissolution caused by (a) the
withdrawal or removal of the General Partner and the failure of all partners to
agree, within 90 days of such withdrawal or removal, to continue the business of
the Partnership and appoint a successor General Partner or (b) the dissolution
of the Partnership based upon the General Partner (A) making a general
assignment for the benefit of creditors, (B) filing a voluntary bankruptcy
petition, (C) filing a petition seeking its reorganization, rearrangement,
readjustment, liquidation, distribution or similar relief under any law or (D)
filing an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against it in a proceeding of the type described
in clauses (A) to (C), holders of at least 66 2/3% of the outstanding Units may
also elect, within certain time limitations, to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in the
Partnership Agreement by forming a new limited partnership on terms identical to
those set forth in the Partnership Agreement and having as a general partner an
entity approved by holders of at least 66 2/3% of the outstanding Units, subject
to receipt by the Partnership of an opinion of counsel that such reconstitution,
continuation and approval will not result in the loss of the limited liability
of the Limited Partners or cause the Partnership or the reconstituted limited
partnership to be taxable as a corporation or an association taxable as a
corporation for federal income tax purposes.

Upon dissolution of the Partnership, unless the Partnership is
reconstituted and continued as a new limited partnership, the person authorized
to wind up the affairs of the Partnership (the "Liquidator") will liquidate the
Partnership's assets and apply and distribute the proceeds of the liquidation in
the order of priority set forth in the Partnership Agreement. The Liquidator may
defer liquidation or distribution of the Partnership's assets and/or distribute
assets to partners in kind if it determines that a sale would be unsuitable.

78
<PAGE> 79

TAX CONSIDERATIONS

This section is a summary of the principal tax considerations that may be
relevant to prospective Unitholders and, to the extent set forth below under
"--Legal Opinions and Advice," represents the opinion of Andrews & Kurth L.L.P.,
special counsel to the General Partner and the Partnership ("Counsel"), insofar
as it relates to matters of law and legal conclusions. This section is based
upon current provisions of the Code, existing and proposed regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change with or without retroactive effect. Subsequent changes in
such authorities may cause the tax consequences to vary substantially from the
consequences described below.

LEGAL OPINIONS AND ADVICE

Counsel has expressed its opinion that, based on the representations and
subject to the qualifications set forth in the detailed discussion that follows,
for federal income tax purposes (i) the Partnership will be treated as a
partnership, (ii) owners of Units (with certain exceptions, as described in
"--Limited Partner Status" below) will be treated as partners of the
Partnership, (iii) distributions by the Partnership will generally not be
taxable to a Unitholder for federal income tax purposes to the extent of his
basis in his Units immediately before the distribution, and (iv) with the
exception of the allocation of recapture income (discussed below), allocations
under the Partnership Agreement will be given effect for federal income tax
purposes in determining a partner's distributive share of items of income, gain,
loss or deduction. In addition, all statements as to matters of law and legal
conclusions contained in this section, unless otherwise noted, reflect the
opinion of Counsel.

Although no attempt has been made in the following discussion to comment on
all federal income tax matters affecting the Partnership or prospective
Unitholders, Counsel has advised the General Partner that, based on current law,
the following is a general description of the principal federal income tax
consequences that should arise from the ownership and disposition of Units. The
discussion focuses on prospective Unitholders who are individual citizens or
residents of the United States and has only limited application to corporations,
estates, trusts or non-resident aliens. Accordingly, each prospective Unitholder
should consult, and should depend on, his tax advisor in analyzing the federal,
state, local and foreign tax consequences to him of the ownership or disposition
of Units.

For the reasons hereinafter described, Counsel has not rendered an opinion
with respect to the following specific federal income tax issues: (i) the
treatment of a Unitholder whose Units are loaned to a "short seller" to cover a
short sale of Units (see "--Tax Treatment of Operations--Treatment of Short
Sales"), (ii) whether a Unitholder acquiring Units in separate transactions must
maintain a single aggregate adjusted tax basis in his Units (see "--Disposition
of Units--Recognition of Gain or Loss"), (iii) whether the Partnership's monthly
convention for allocating taxable income and losses is permitted by existing
Treasury Regulations (see "--Disposition of Units--Allocations between
Transferors and Transferees"), and (iv) whether the Partnership's method for
depreciating Section 743 adjustments, utilized to maintain the uniformity of the
economic and tax characteristics of the Units, is sustainable (see "--Uniformity
of Units").

Except as set forth below under "--Partnership Status," no ruling has been
requested from the Internal Revenue Service with respect to the foregoing issues
or any other matter affecting the Partnership or prospective Unitholders. An
opinion of counsel represents only that counsel's best legal judgment and does
not bind the Internal Revenue Service or the courts. Thus, no assurance can be
provided that the opinions and statements set forth herein would be sustained by
a court if contested by the Internal Revenue Service. The costs of contesting
any issues with the Internal Revenue Service will be borne directly or
indirectly by the Unitholders and the General Partner. Furthermore, no assurance
can be given that the treatment of the Partnership or an investment therein will
not be significantly modified by future legislative or administrative changes or
court decisions. Any such modification may or may not be retroactively applied.

PARTNERSHIP STATUS

A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his allocable
share of items of income, gain, loss and deduction of the Partnership in
computing his federal income tax liability, regardless of whether cash
distributions are made.

79
<PAGE> 80

Distributions by a partnership to a partner are generally not taxable unless the
amount of any cash distributed is in excess of the partner's adjusted basis in
his partnership interest.

Other than as described below, no ruling has been sought from the Internal
Revenue Service as to the status of the Partnership as a partnership for federal
income tax purposes. Instead, the Partnership is relying on the opinion of
Counsel that, based upon the Code, the regulations thereunder, published revenue
rulings and court decisions, the Partnership has been and will be classified as
a partnership for federal income tax purposes.

In rendering its opinion, Counsel has relied on certain representations and
covenants made by the Partnership and the General Partner. Such factual matters
are as follows:

a. With respect to the Partnership, the General Partner, at all times
while acting as general partner of the Partnership, has and will have a net
worth, computed on a fair market value basis, excluding its interests in
the Partnership and any notes or receivables due from the Partnership, of
not less than $5 million;

b. The Partnership has been and will be operated in accordance with
(i) all applicable partnership statutes, (ii) the Partnership Agreement and
(iii) this Prospectus;

c. The General Partner has and will at all times act independently of
the limited partners (other than with respect to the limited partner
interest held by a General Partner); and

d. For each taxable year, more than 90% of the gross income of the
Partnership has been and will be derived from (i) the exploration,
development, production, processing, refining, transportation or marketing
of any mineral or natural resource, including timber, (ii) the sale or
other disposition of real property, or (iii) other items of "qualifying
income" within the meaning of Section 7704(d) of the Code.

Regulations recently proposed by the Internal Revenue Service (the "Check
the Box Regulations") may, if adopted as final, make certain of these
representations unnecessary. Subject to Section 7704 of the Code, the Check the
Box Regulations would generally allow entities such as the Partnership to choose
partnership or corporate treatment for federal income tax purposes. It cannot be
predicted whether the Check the Box Regulations will become final or the form
they will take if they become final.

Section 7704 of the Code provides that publicly-traded partnerships, such
as the Partnership, will, as a general rule, be taxed as corporations. However,
an exception (the "Qualifying Income Exception") exists with respect to
publicly-traded partnerships of which 90% or more of the gross income for every
taxable year consists of "qualifying income." Qualifying income includes income
from the processing, marketing or transportation of timber and also includes
income derived from the sale or other disposition of real property. The
Partnership's principal sources of income include income from the marketing and
sale of timber. The Partnership also derives gross income from sawmill
operations and the production and sale of plywood, medium density fiberboard and
laminates. The Partnership has obtained rulings from the Internal Revenue
Service that the income from its sawmill operations and from the production and
sale of plywood and medium density fiberboard constitutes qualifying income
within the meaning of Section 7704(d). The Partnership anticipates that its
annual gross income from the production and sale of laminates will be de
minimis. The General Partner will monitor the amount of gross income derived by
the Partnership from the production and sale of laminates. In the event that the
Partnership concludes that such gross income could, when considered together
with any other sources of nonqualifying income, cause the Partnership to fail
the requirements of the Qualifying Income Exception, the Partnership will either
obtain a ruling from the Internal Revenue Service that the income from the
production and sale of laminates is qualifying income or take other action to
prevent the Partnership from failing to meet those requirements.

The Partnership will use its best efforts to ensure that more than 90% of
the Partnership's gross income will be qualifying income. If the Partnership
fails to meet the Qualifying Income Exception (other than a failure which is
determined by the Internal Revenue Service to be inadvertent and which is cured
within a reasonable time after discovery), the Partnership will be treated as if
it had transferred all of its assets (subject to liabilities) to a newly formed
corporation (on the first day of the year in which it fails to meet the

80
<PAGE> 81

Qualifying Income Exception) in return for stock in that corporation, and then
distributed that stock to the partners in liquidation of their interests in the
Partnership. This contribution and liquidation should be tax-free to Unitholders
and the Partnership, so long as the Partnership, at that time, does not have
liabilities in excess of the basis of its assets. Thereafter, the Partnership
would be treated as a corporation for federal income tax purposes.

If the Partnership were treated as an association taxable as a corporation
in any taxable year, either as a result of a failure to meet the Qualifying
Income Exception or otherwise, its items of income, gain, loss and deduction
would be reflected only on its tax return rather than being passed through to
the Unitholders, and its net income would be subject to tax at the Partnership
level at corporate rates. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income (to the extent of the
Partnership's current or accumulated earnings and profits) or (in the absence of
earnings and profits) as a nontaxable return of capital (to the extent of the
Unitholder's basis in his Units) or taxable capital gain (after the Unitholder's
basis in the Units is reduced to zero). Accordingly, treatment of the
Partnership as an association taxable as a corporation would result in a
material reduction in a Unitholder's cash flow and after-tax return.

The discussion below is based on the assumption that the Partnership will
be classified as a partnership for federal income tax purposes.

LIMITED PARTNER STATUS

Unitholders who have become limited partners of the Partnership will be
treated as partners of the Partnership for federal income tax purposes.
Moreover, the Internal Revenue Service has ruled that assignees of partnership
interests who have not been admitted to a partnership as partners, but who have
the capacity to exercise substantial dominion and control over the assigned
partnership interests, will be treated as partners for federal income tax
purposes. On the basis of this ruling, except as otherwise described herein,
Counsel is of the opinion that (a) assignees who have executed and delivered
Transfer Applications, and are awaiting admission as limited partners and (b)
Unitholders whose Units are held in street name or by another nominee and who
have the right to direct the nominee in the exercise of all substantive rights
attendant to the ownership of their Units will be treated as partners of the
Partnership for federal income tax purposes. As the above-referenced ruling of
the Internal Revenue Service does not extend, on its facts, to assignees of
Units who are entitled to execute and deliver Transfer Applications and thereby
become entitled to direct the exercise of attendant rights, but who fail to
execute and deliver Transfer Applications, Counsel's opinion does not extend to
these persons. Income, gain, deductions or losses would not appear to be
reportable by a Unitholder who is not a partner for federal income tax purposes,
and any cash distributions received by such a Unitholder would therefore be
fully taxable as ordinary income. These holders should consult their tax
advisors with respect to their status as partners in the Partnership for federal
income tax purposes. A purchaser or other transferee of Units who does not
execute and deliver a Transfer Application may not receive certain federal
income tax information or reports furnished to record holders of Units unless
the Units are held in a nominee or street name account and the nominee or broker
has executed and delivered a Transfer Application with respect to such Units.

A beneficial owner of Units whose Units have been transferred to a short
seller to complete a short sale would appear to lose his status as a partner
with respect to such Units for federal income tax purposes. See "--Tax Treatment
of Operations-- Treatment of Short Sales."

TAX CONSEQUENCES OF UNIT OWNERSHIP

Flow-through of Taxable Income. No federal income tax will be paid by the
Partnership. Instead, each Unitholder will be required to report on his income
tax return his allocable share of the income, gains, losses and deductions of
the Partnership without regard to whether corresponding cash distributions are
received by him. Consequently, a Unitholder may be allocated income from the
Partnership even if he has not received a cash distribution. Each Unitholder
will be required to include in income his allocable share of Partnership income,
gain, loss and deduction for the taxable year of the Partnership ending with or
within the taxable year of the Unitholder. Currently, the top marginal income
tax rate for individuals is 36% subject to a 10% surtax

81
<PAGE> 82

on individuals with taxable income in excess of $263,750 per year. The surtax is
computed by applying a 39.6% rate to taxable income in excess of the threshold.
The net capital gain of an individual remains subject to a maximum 28% tax rate.

Treatment of Partnership Distributions. Distributions by the Partnership
to a Unitholder generally will not be taxable to the Unitholder for federal
income tax purposes to the extent that the amount distributed does not exceed
the Unitholder's basis in his Units immediately before the distribution. Cash
distributions in excess of a Unitholder's basis generally will be considered to
be gain from the sale or exchange of the Units, taxable in accordance with the
rules described under "--Disposition of Units" below. Any reduction in a
Unitholder's share of the Partnership's liabilities for which no partner,
including the General Partner, bears the economic risk of loss ("nonrecourse
liabilities") will be treated as a distribution of cash to that Unitholder. To
the extent that Partnership distributions cause a Unitholder's "at risk" amount
to be less than zero at the end of any taxable year, he must recapture any
losses deducted in previous years. See "--Limitations on Deductibility of
Partnership Losses."

A decrease in a Unitholder's Percentage Interest in the Partnership because
of the issuance by the Partnership of additional Units could decrease such
Unitholder's share of nonrecourse liabilities of the Partnership, and thus
result in a corresponding deemed distribution of cash. Any such deemed
distribution of cash would be non-taxable to the extent it does not exceed the
Unitholder's basis in his Units. Although not anticipated, a non-pro rata
distribution of money or property may result in ordinary income to a Unitholder,
regardless of his basis in his Units, if such distribution reduces the
Unitholder's share of the Partnership's "unrealized receivables" (including
depreciation recapture) and/or substantially appreciated "inventory items" (both
as defined in Section 751 of the Code) (collectively, "Section 751 Assets").

Ratio of Taxable Income to Cash Distributions. The ratio of taxable income
to cash distributions will have an impact on the investment return to a
Unitholder. The General Partner estimates that a purchaser of Units in this
offering who holds such Units from the date of the closing of this offering to
the record date for the last quarter of 1999 will be allocated, on a cumulative
basis, an amount of federal taxable income for such period that will be less
than 10% of the cash distributed with respect to that period. A majority of such
taxable income is expected to be treated as capital gains (depending upon a
Unitholder's particular tax circumstances) as a result of an election under
Section 631(a) of the Code and as a result of timber transactions qualifying for
treatment under Section 631(b) of the Code. The General Partner further
estimates that after 1999 the taxable income allocable to the Unitholders will
constitute a significantly higher percentage of cash distributed to Unitholders.
These estimates are based upon the assumption that Available Cash will
approximate an amount required to maintain quarterly distribution with respect
to the Units at their current level, along with other assumptions regarding the
levels of capital expenditures and required reserves. These estimates and
assumptions are subject to, among other things, numerous business, economic,
regulatory, competitive and political uncertainties beyond the control of the
General Partner, especially the assumed prices for logs and other forest
products. Further, the estimates are based on current tax law and certain tax
reporting positions that the General Partner has adopted and with which the
Internal Revenue Service could disagree. Accordingly, no assurance can be given
that the estimates will prove to be correct. The actual percentage could be
higher or lower and such difference could be material. The General Partner has
not requested and does not intend to request any tax ruling from the Internal
Revenue Service regarding these tax positions.

Basis of Units. A Unitholder's initial tax basis for his Units will be the
amount he paid for the Units plus his share of the Partnership's nonrecourse
liabilities. That basis will be increased by his share of Partnership income and
by any increases in his share of Partnership nonrecourse liabilities. That basis
will be decreased (but not below zero) by distributions from the Partnership, by
the Unitholder's share of Partnership losses, by any decrease in his share of
Partnership nonrecourse liabilities and by his share of expenditures of the
Partnership that are not deductible in computing its taxable income and are not
required to be capitalized. In general, a limited partner has no share of
Partnership debt which is recourse to the General Partner, but does have a
share, generally based on his share of profits, of Partnership debt which is not
recourse to any partner. See "--Disposition of Units--Recognition of Gain or
Loss."

82
<PAGE> 83

Limitations on Deductibility of Partnership Losses. The deduction by a
Unitholder of his share of Partnership losses will be limited to the tax basis
in his Units and, in the case of an individual Unitholder or a corporate
Unitholder (if more than 50% in the value of its stock is owned directly or
indirectly by five or fewer individuals or certain tax-exempt organizations), to
the amount which the Unitholder is considered to be "at risk" with respect to
the Partnership's activities, if that is less than the Unitholder's basis. A
Unitholder must recapture losses deducted in previous years to the extent that
Partnership distributions cause the Unitholder's at risk amount to be less than
zero at the end of any taxable year. Losses disallowed to a Unitholder or
recaptured as a result of these limitations will carry forward and will be
allowable to the extent that the Unitholder's basis or at risk amount (whichever
is the limiting factor) is subsequently increased. Upon the taxable disposition
of a Unit, any gain recognized by a Unitholder can be offset by losses that were
previously suspended by the at risk limitation but may not be offset by losses
suspended by the basis limitation. Any excess loss (above such gain) previously
suspended by the at risk or basis limitations is no longer utilizable.

In general, a Unitholder will be at risk to the extent of the tax basis of
his Units, excluding any portion of that basis attributable to his share of
Partnership debt, reduced by any amount of money the Unitholder borrows to
acquire or hold his Units if the lender of such borrowed funds owns an interest
in the Partnership, is related to such a person or can look only to Units for
repayment. A Unitholder's at risk amount will increase or decrease as the basis
of the Unitholder's Units increases or decreases (other than increases or
decreases attributable to increases or decreases in his share of Partnership
nonrecourse liabilities).

In addition to the foregoing, the passive loss limitations generally
provide that individuals, estates, trusts and certain closely-held corporations
and personal service corporations can deduct losses from passive activities
(generally, activities in which the taxpayer does not materially participate)
only to the extent of the taxpayer's income from those passive activities. The
passive loss limitations are applied separately with respect to each
publicly-traded partnership. Consequently, a Unitholder will only be able to use
any passive losses generated by the Partnership to offset income generated by
the Partnership and will not be able to use such losses to offset income from
other passive activities or investments (including other publicly-traded
partnerships) or salary or active business income. Passive losses which are not
deductible because they exceed a Unitholder's income generated by the
Partnership may be deducted in full when he disposes of his entire investment in
the Partnership in a fully taxable transaction to an unrelated party. The
passive activity loss rules are applied after other applicable limitations on
deductions such as the at risk rules and the basis limitation.

A Unitholder's share of net income from the Partnership may be offset by
any suspended passive losses from the Partnership, but it may not be offset by
any other current or carryover losses from other passive activities, including
those attributable to other publicly-traded partnerships. The Internal Revenue
Service has announced that Treasury Regulations will be issued which
characterize net passive income from a publicly-traded Partnership as investment
income for purposes of the limitations on the deductibility of investment
interest.

Limitations on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
such taxpayer's "net investment income."As noted, a Unitholder's net passive
income from the Partnership will be treated as investment income for this
purpose. In addition, the Unitholder's share of the Partnership's portfolio
income will be treated as investment income. Investment interest expense
includes (i) interest on indebtedness properly allocable to property held for
investment, (ii) a partnership's interest expense attributed to portfolio income
and (iii) the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to portfolio income.
The computation of a Unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a Unit to the extent attributable to portfolio income of the
Partnership. Net investment income includes gross income from property held for
investment and amounts treated as portfolio income pursuant to the passive loss
rules less deductible expenses (other than interest) directly connected with the
production of investment income, but generally does not include gains
attributable to Section 631 or to the disposition of property held for
investment, unless the taxpayer makes an election to include such gains.

83
<PAGE> 84

Allocation of Partnership Income, Gain, Loss and Deduction. The
Partnership Agreement requires that a capital account be maintained for each
partner, that the capital accounts generally be maintained in accordance with
the tax accounting principles set forth in applicable Treasury Regulations and
that all allocations to a partner be reflected by appropriate increases or
decreases in his capital account. Distributions upon liquidation of the
Partnership generally are to be made in accordance with positive capital account
balances.

Under Section 704(b) and Section 704(c) of the Code, certain items of
Partnership income, deduction, gain and loss will be allocated to account for
the difference between the tax basis and fair market value of certain property
held by the Partnership ("Contributed Property" or "Adjusted Property"). Under
the Code, the partners in a Partnership cannot be allocated more depreciation,
gain or loss than the total amount of any such item recognized by that
Partnership in a particular taxable period (the "ceiling limitation"). To the
extent the ceiling limitation is or becomes applicable, the Partnership
Agreement will require that certain items of income and deduction be allocated
in a way designed to effectively "cure" this problem and eliminate the impact of
the ceiling limitation. Regulations under Section 704(c) of the Code permit a
Partnership to make reasonable allocations to reduce or eliminate book-tax
disparities.

In addition, certain items of recapture income will be allocated, to the
extent possible, to the partner allocated the deduction giving rise to the
treatment of such gain as recapture income in order to minimize the recognition
of ordinary income by some Unitholders, but these allocations may not be
respected. If these allocations of recapture income are not respected, the
amount of the income or gain allocated to a Unitholder will not change, but a
change in the character of the income allocated to a Unitholder would result.

Counsel is of the opinion that, with the exception of the allocation of
recapture income discussed above, allocations under the Partnership Agreement
will be given effect for federal income tax purposes in determining a partner's
distributive share of an item of income, gain, loss or deduction. There are,
however, uncertainties in the Treasury Regulations relating to allocations of
Partnership income, and investors should be aware that the allocations of
recapture income in the Partnership Agreement may be successfully challenged by
the Internal Revenue Service.

TAX TREATMENT OF OPERATIONS

Accounting Method and Taxable Year. The Partnership uses the fiscal year
ending December 31 as its taxable year and has adopted the accrual method of
accounting for federal income tax purposes. Each Unitholder will be required to
include in income his allocable share of Partnership income, gain, loss and
deduction for the fiscal year of the Partnership ending within or with the
taxable year of the Unitholder. In addition, a Unitholder who has a taxable year
ending on a date other than December 31 and who disposes of all of his Units
following the close of the Partnership's taxable year but before the close of
his taxable year must include his allocable share of Partnership income, gain,
loss and deduction in income for his taxable year with the result that he will
be required to report in income for his taxable year his distributive share of
more than one year of Partnership income, gain, loss and deduction. See
"--Disposition of Units--Allocations Between Transferors and Transferees."

Initial Tax Basis, Depreciation and Amortization. The tax basis
established for the various assets of the Partnership will be used for purposes
of computing depletion with respect to timber properties, depreciation and cost
recovery deductions and, ultimately, gain or loss on the disposition of such
assets. The tax basis of the Riverwood Assets will equal the purchase price of
those assets (less gain deferred on the like-kind exchange of the Newport
Timberlands), which will be allocated among those assets based on their fair
market values. The federal income tax burden associated with the difference, at
the time of this offering, between the fair market value and tax basis of
property held by the Partnership at the time of this offering (i.e., built-in
gain) will be borne by the Partners in the Partnership immediately prior to this
offering. See "--Tax Consequences of Unit Ownership --Allocation of Partnership
Income, Gain, Loss and Deduction."

If the Partnership disposes of depreciable property by sale, foreclosure,
or otherwise, all or a portion of any gain (determined by reference to the
amount of depreciation previously deducted and the nature of the property) may
be subject to the recapture rules and taxed as ordinary income rather than
capital gain.

84
<PAGE> 85

Similarly, a partner who has taken cost recovery or depreciation deductions with
respect to property owned by the Partnership may be required to recapture such
deductions as ordinary income upon a sale of his interest in the Partnership.
See "--Tax Consequences of Unit Ownership--Allocation of Partnership Income,
Gain, Loss and Deduction" and "--Disposition of Units--Recognition of Gain or
Loss."

The costs incurred by the Partnership in promoting the issuance of Units
must be capitalized and cannot be deducted currently, ratably or upon
termination of the Partnership.

Timber Income. Section 631 of the Code provides special rules by which
gains or losses on the sale of timber may be treated, in whole or in part, as
gains or losses from the sale of property used in a trade or business under
Section 1231 of the Code. For a discussion of the treatment of Section 1231
gains and losses, see "--Sales of Timberlands."

Section 631(a) of the Code provides that, if an election is made, the
cutting of timber during the year by a taxpayer who owns the timber or a
contract right to cut the timber shall be treated as the sale of that timber for
an amount equal to the fair market value of the timber as of the first day of
the taxable year in which the timber is cut. In computing the amount of gain or
loss, the taxpayer is entitled to offset his basis in the timber against its
fair market value. The gain or loss is recognized in the year the timber is cut
and is treated under Section 1231 of the Code as gain or loss from the sale of
property used in a trade or business. For a discussion of the treatment of
Section 1231 gains and losses, see "--Sales of Timberlands." The fair market
value of the standing timber as of the first day of the taxable year in which
the timber is cut will become the tax basis of the cut timber (or the raw
material cost of the product into which it is converted) for purposes of
determining gain or loss on a subsequent sale, which gain or loss would be
ordinary income or loss in the year of sale. The election under Section 631(a)
is available only with respect to timber or contract rights to cut timber that
the taxpayer held for a period of more than one year before such cutting. The
election applies to all timber that the taxpayer owns or has the right to cut,
and once made cannot be revoked without the consent of the Internal Revenue
Service. The Partnership has made the election provided by Section 631(a).

Section 631(b) of the Code provides that if the owner of timber (including
a holder of a contract right to cut timber) held for more than one year disposes
of such timber under any contract by virtue of which he "retains an economic
interest in such timber," the gain or loss realized will be treated under
Section 1231 of the Code as gain or loss from property used in a trade or
business. For a discussion of the treatment of Section 1231 gains and losses,
see "--Sales of Timberlands." In computing such gain or loss, the amount
realized is reduced by the adjusted basis in such timber, determined as
described in "--Timber Depletion." For purposes of Section 631(b), the timber
generally is deemed to be disposed of on the day on which the timber is cut
(which is generally deemed to be the date when, in the ordinary course of
business, the quantity of the timber cut is first definitely determined).

Gains from sale of timber by the Partnership that do not qualify under
Section 631 generally will be taxable as ordinary income in the year of sale.
Until the Partnership has held the Southern Timberlands for more than one year,
gains from the sale of such timber would generally not qualify under Section
631.

Timber Depletion. Timber is subject to cost depletion and is not subject
to accelerated cost recovery, depreciation or percentage depletion. Timber
depletion is determined with respect to each separate timber account (containing
timber located in a timber "block") and is equal to the product obtained by
multiplying the units of timber cut by a fraction, the numerator of which is the
aggregate adjusted basis of all timber included in such account and the
denominator of which is the total number of timber units in such timber account.
The depletion allowance so calculated represents the adjusted tax basis of such
timber for purposes of determining gain or loss on disposition. The tax basis of
timber remaining in each timber account is reduced by the depletion allowance
for such account.

If a Section 631(a) election is in effect, the taxpayer will be entitled to
a depletion allowance as discussed above. Thereafter, the taxpayer's adjusted
basis with respect to timber cut during the year will be the fair market value
of the timber as of the first day of the taxable year in which the timber is
cut. As the cut timber (or the product into which it was converted) is sold, the
taxpayer's adjusted basis will be taken into account for purposes of determining
gain or loss on the sale.

85
<PAGE> 86

In the case of an outright sale of timber or a disposition of timber
treated as a sale under Section 631(b) of the Code, the amount realized for the
timber is reduced by the depletion allowance for such timber as discussed above.
A taxpayer disposing of timber with a retained economic interest in a
transaction which fails to qualify under Section 631(b) also reduces the amount
realized from such disposition by the depletion allowance for such timber.

Sales of Timberlands. If any tract of timberland is sold or otherwise
disposed of in a taxable transaction, the Partnership will recognize gain or
loss measured by the difference between the amount realized (including the
amount of any indebtedness assumed by the purchaser upon such disposition or to
which such property is subject) and the adjusted tax basis of such property.
Generally, the character of any gain or loss recognized upon that disposition
will depend upon whether the tract of timberland (i) is held for sale to
customers in the ordinary course of business (i.e., the Partnership is a
"dealer" with respect to such property), (ii) is held for "use in a trade or
business" within the meaning of Section 1231 of the Code or (iii) is held by the
Partnership as a "capital asset" within the meaning of Section 1221 of the Code.
In determining dealer status with respect to timberlands and other types of real
estate, the courts have identified a number of factors for distinguishing
between a particular property held for sale in the ordinary course of business
and one held for investment. Any determination must be based on all the facts
and circumstances surrounding the particular property and sale in question.

The General Partner believes that the Partnership is not a dealer with
respect to any of its Timberlands. The Partnership has held and intends to
continue to hold its Timberlands for the purposes of generating cash flow from
the periodic harvesting and sale of timber and achieving long-term capital
appreciation. Although the General Partner may consider strategic sales of the
Partnership's Timberlands consistent with achieving long-term capital
appreciation, the General Partner does not anticipate frequent sales, nor
significant marketing, improvement or subdivision activity in connection with
any strategic sale of timberland. However, in light of the factual nature of
this question, there can be no assurance that the purposes of the Partnership
will not change and that future activities of the Partnership will not cause it
to be a "dealer" in timberlands.

If the Partnership is not a dealer with respect to a particular tract of
timberland and the Partnership has held the timberland for a one-year period
primarily for use in its trade or business, the character of any gain or loss
realized from the disposition of such timberland will be determined under
Section 1231 of the Code. If the Partnership has not held a timberland tract for
more than one year at the time of sale, gain or loss from the sale thereof will
be ordinary.

A Unitholder's distributive share of any Section 1231 gain or loss of the
Partnership will be aggregated with any other gains and losses realized by such
Unitholder from the disposition of property used in the trade or business, as
defined in Section 1231(b) of the Code, and from the involuntary conversion of
such properties and of capital assets held in connection with a trade or
business or a transaction entered into for profit for the requisite holding
period. If a net gain results, all such gains and losses will be capital gains
and losses; if a net loss results, all such gains and losses will be ordinary
income and losses. Capital gains of individual taxpayers are currently taxed at
a maximum rate of 28%; ordinary income of individual taxpayers is currently
taxed at a maximum marginal rate of 39.6%. Net Section 1231 gains will be
treated as ordinary income to the extent of prior net Section 1231 losses of the
taxpayer or predecessor taxpayer for the five most recent prior taxable years
beginning after December 31, 1981, to the extent such losses have not previously
been offset against Section 1231 gains. Losses are deemed recaptured in the
chronological order in which they arose.

If the Partnership is not a dealer with respect to a particular tract of
timberland, and the timberland is not used in a trade or business, that tract
will be a "capital asset" within the meaning of Section 1221 of the Code. Gain
or loss recognized from the disposition of that timberland will be taxable as
capital gain or loss, and the character of such capital gain or loss as
long-term or short-term will be based upon the Partnership's holding period in
such property at the time of its sale. The requisite holding period for
long-term capital gain is more than one year.

Since amounts realized upon the sale, exchange or other disposition of a
tract of timberland by the Partnership may be used to reduce any liability to
which the tract of timberland is subject, it is possible, although not
anticipated, that the Partnership's gain on the sale of such a tract could
exceed the distributive

86
<PAGE> 87

proceeds of the sale, and the income taxes payable on the sale by the
Unitholders could exceed their distributive share of any such proceeds.

Section 754 Election. The Partnership has made the election permitted by
Section 754 of the Code, which election is irrevocable without the consent of
the Internal Revenue Service. The election will generally permit a purchaser of
Units to adjust his share of the basis in the Partnership's properties ("inside
basis") pursuant to Section 743(b) of the Code to fair market value (as
reflected by his Unit purchase price). The Section 743(b) adjustment is
attributed solely to a purchaser of Units and is not added to the bases of the
Partnership's assets associated with all of the Unitholders. (For purposes of
this discussion, a partner's inside basis in the Partnership's assets will be
considered to have two components: (1) his share of the Partnership's actual
basis in such assets ("Common Basis") and (2) his Section 743(b) adjustment
allocated to each such asset.)

Proposed Treasury Regulation Section 1.168-2(n) generally requires the
Section 743(b) adjustment attributable to recovery property to be depreciated as
if the total amount of such adjustment were attributable to newly-acquired
recovery property placed in service when the purchaser acquires the Unit.
Similarly, the legislative history of Section 197 indicates that the Section
743(b) adjustment attributable to an amortizable Section 197 intangible should
be treated as a newly-acquired asset placed in service in the month when the
purchaser acquires the Unit. Under Treasury Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property subject to depreciation
under Section 167 of the Code rather than cost recovery deductions under Section
168 is generally required to be depreciated using either the straight-line
method or the 150% declining balance method. None of the above described rules
apply to timber depletion. The depreciation and amortization methods and useful
lives associated with the Section 743(b) adjustment, therefore, may differ from
the methods and useful lives generally used to depreciate the Common Basis in
such properties. Pursuant to the Partnership Agreement, the General Partner is
authorized to adopt a convention to preserve the uniformity of Units even if
such convention is not consistent with Treasury Regulation Sections
1.167(c)-1(a)(6), Proposed Treasury Regulation Section 1.168-2(n) or the
legislative history of Section 197 of the Code. See "--Uniformity of Units."

Although Counsel is unable to opine as to the validity of such an approach,
the Partnership intends to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of any Contributed or
Adjusted Property (to the extent of any unamortized book-tax disparity) using a
rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the Common Basis of such
property, despite its inconsistency with Proposed Treasury Regulation Section
1.168-2(n), Treasury Regulation Section 1.167(c)-1(a)(6) or the legislative
history of Section 197 of the Code. If the Partnership determines that such
position cannot reasonably be taken, the Partnership may adopt a depreciation or
amortization convention under which all purchasers acquiring Units in the same
month would receive depreciation or amortization, whether attributable to Common
Basis or Section 743(b) basis, based upon the same applicable rate as if they
had purchased a direct interest in the Partnership's property. Such an aggregate
approach may result in lower annual depreciation or amortization deductions than
would otherwise be allowable to certain Unitholders. See "--Uniformity of
Units."

The allocation of the Section 743(b) adjustment must be made in accordance
with the principles of Section 1060 of the Code. Based on these principles, the
Internal Revenue Service may seek to reallocate some or all of any Section
743(b) adjustment to assets which would be amortizable over a longer period of
time than the Partnership's tangible assets or could be nonamortizable.

A Section 754 election is advantageous if the transferee's basis in his
Units is higher than such Units' share of the aggregate basis to the Partnership
of the Partnership's assets immediately prior to the transfer. In such a case,
pursuant to the election, the transferee would take a new and higher basis in
his share of the Partnership's assets for purposes of calculating, among other
items, his depreciation and depletion deductions and his share of any gain or
loss on a sale of the Partnership's assets. Conversely, a Section 754 election
is disadvantageous if the transferee's basis in such Units is lower than such
Unit's share of the aggregate basis of the Partnership's assets immediately
prior to the transfer. Thus, the amount which a Unitholder will be able to
obtain upon the sale of his Units may be affected either favorably or adversely
by the election.

87
<PAGE> 88

The calculations involved in the Section 754 election are complex and will
be made by the Partnership on the basis of certain assumptions as to the value
of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership will not be successfully challenged by
the Internal Revenue Service and that the deductions attributable to them will
not be disallowed or reduced. Should the Internal Revenue Service require a
different basis adjustment to be made, and should, in the General Partner's
opinion, the expense of compliance exceed the benefit of the election, the
General Partner may seek permission from the Internal Revenue Service to revoke
the Section 754 election for the Partnership. If such permission is granted, a
purchaser of Units subsequent to such revocation probably will incur increased
tax liability.

Alternative Minimum Tax. Each Unitholder will be required to take into
account his distributive share of any items of Partnership income, gain or loss
for purposes of the alternative minimum tax applicable to his alternative
minimum taxable income. A Unitholder's alternative minimum taxable income
derived from the Partnership may be higher than his share of Partnership net
income because the Partnership may use accelerated methods of depreciation for
purposes of computing federal taxable income or loss. The minimum tax rate
applicable to noncorporate Unitholders is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption amount and 28% on
any additional alternative minimum taxable income. Prospective Unitholders
should consult with their tax advisors as to the impact of an investment in
Units on their liability for the alternative minimum tax.

Valuation of Partnership Property and Basis of Properties. The federal
income tax consequences of the acquisition, ownership and disposition of Units
will depend in part on estimates by the General Partner of the relative fair
market values, and determinations of the tax basis, of the assets of the
Partnership. Although the General Partner may from time to time consult with
professional appraisers with respect to valuation matters, many of the relative
fair market value estimates will be made solely by the General Partner. These
estimates and determinations of basis are subject to challenge and will not be
binding on the Internal Revenue Service or the courts. If the estimates of fair
market value or determinations of basis are subsequently found to be incorrect,
the character and amount of items of income, gain, loss or deductions previously
reported by Unitholders might change, and Unitholders might be required to
adjust their tax liability for prior years or to file claims for refunds.

Treatment of Short Sales. It would appear that a Unitholder whose Units
are loaned to a "short seller" to cover a short sale of Units will be considered
as having transferred beneficial ownership of those Units and would, thus, no
longer be a partner with respect to those Units during the period of the loan.
As a result, during this period, any Partnership income, gain, deduction or loss
with respect to those Units would appear not to be reportable by the Unitholder,
any cash distributions received by the Unitholder with respect to those Units
would be fully taxable and all of such distributions would appear to be treated
as ordinary income. The Internal Revenue Service may also contend that a loan of
Units to a "short seller" constitutes a taxable exchange. If this contention
were successfully made, the lending Unitholder could be required to recognize
gain or loss. Unitholders desiring to assure their status as partners should
modify any brokerage account agreements to prohibit their brokers from borrowing
their Units. The Internal Revenue Service has announced that it is actively
studying issues relating to the tax treatment of short sales of Partnership
interests.

DISPOSITION OF UNITS

Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
Units in an amount equal to the difference between the amount realized and the
Unitholder's tax basis for the Units sold. A Unitholder's amount realized will
be measured by the sum of the cash or the fair market value of other property
received plus his share of Partnership debt. Because the amount realized
includes a Unitholder's share of Partnership debt, the gain recognized on the
sale of Units may result in a tax liability in excess of any cash received from
such sale.

Gain or loss recognized by a Unitholder (other than a "dealer" in Units) on
the sale or exchange of a Unit held for more than one year will generally be
taxable as long-term capital gain or loss. A portion of this gain or loss,
however, will be separately computed and taxed as ordinary income or loss under
Section 751 of the Code to the extent attributable to assets giving rise to
depreciation recapture or other "unrealized

88
<PAGE> 89

receivables" or to "substantially appreciated inventory" owned by the
Partnership. The term "unrealized receivables" includes potential recapture
items, including depreciation recapture. Inventory is considered to be
"substantially appreciated" if its value exceeds 120% of its adjusted basis to
the Partnership. Ordinary income attributable to unrealized receivables,
substantially appreciated inventory and depreciation recapture may exceed net
taxable gain realized upon the sale of the Unit and may be recognized even if
there is a net taxable loss realized on the sale of the Unit. Thus, a Unitholder
may recognize both ordinary income and a capital loss upon a disposition of
Units. Net capital loss may offset no more than $3,000 of ordinary income in the
case of individuals and may only be used to offset capital gain in the case of a
corporation, although any unused net capital loss of an individual may be
carried over to subsequent taxable years and any unused net capital loss of a
corporation may generally be carried back to the three preceding taxable years
and carried over to the five subsequent taxable years.

In the event the Partnership is determined to be a dealer in timberlands
(as discussed in "--Tax Treatment of Operations--Sales of Timberlands"), it is
likely that the principles set forth in Section 751(a) of the Code would require
a substantial portion of the gain recognized upon the disposition of Units to be
characterized as ordinary income rather than capital gain.

The Internal Revenue Service has ruled that a partner acquiring interests
in a Partnership in separate transactions must maintain an aggregate adjusted
tax basis in a single Partnership interest and that, upon sale or other
disposition of some of the interests, a portion of that tax basis must be
allocated to the interests sold on the basis of some equitable apportionment
method not specified by the Internal Revenue Service. The ruling is unclear as
to how the holding period is affected by this aggregation concept. If this
ruling is applicable to the holders of Units, the aggregation of tax bases of a
holder of Units effectively prohibits him from choosing among Units with varying
amounts of unrealized gain or loss as would be possible in a stock transaction.
Thus, the ruling may result in an acceleration of gain or deferral of loss on a
sale of a portion of a Unitholder's Units. It is not clear whether the ruling
applies to publicly-traded partnerships, such as the Partnership, the interests
in which are evidenced by separate certificates. Accordingly, Counsel is unable
to opine as to the effect such ruling will have on the Unitholders. Furthermore,
under the financial products provisions of the 1996 Proposed Legislation, the
tax basis of any interests in a publicly traded partnership which are
substantially identical (and any adjustments to the tax basis) would be
determined on an average basis. A Unitholder considering the purchase of
additional Units or a sale of Units purchased at differing prices should consult
his tax advisor as to the possible consequences of such ruling and any
subsequent legislation.

Allocations between Transferors and Transferees. In general, the
Partnership's taxable income and losses will be determined annually and will be
prorated on a monthly basis and subsequently apportioned among the Unitholders
in proportion to the number of Units owned by them as of the opening of the
first business day of the month to which they relate. However, gain or loss
realized on a sale or other disposition of Partnership assets other than in the
ordinary course of business will be allocated among the Unitholders of record as
of the opening of the New York Stock Exchange on the first business day of the
month in which that gain or loss is recognized. As a result of this monthly
allocation, a Unitholder transferring Units in the open market may be allocated
income, gain, loss and deduction accrued after the date of transfer.

The use of this monthly convention may not be permitted by existing
Treasury Regulations and, accordingly, Counsel is unable to opine on the
validity of this method of allocating income and deductions between the
transferors and the transferees of Units. If a monthly convention is not allowed
by the Treasury Regulations (or only applies to transfers of less than all of
the Unitholder's interest), taxable income or losses of the Partnership might be
reallocated among the Unitholders. The General Partner is authorized to revise
the Partnership's method of allocation between transferors and transferees (as
well as among partners whose interests otherwise vary during a taxable period)
to conform to a method permitted by future Treasury Regulations.

A Unitholder who owns Units at any time during a quarter and who disposes
of such Units prior to the record date set for a distribution with respect to
such quarter will be allocated items of Partnership income and

89
<PAGE> 90

gain attributable to the quarter during which those Units were owned but will
not be entitled to receive that cash distribution.

Notification Requirements. A Unitholder who sells or exchanges Units is
required to notify the Partnership in writing of that sale or exchange within 30
days of the sale or exchange and in any event by no later than January 15 of the
year following the calendar year in which the sale or exchange occurred. The
Partnership is required to notify the Internal Revenue Service of that
transaction and to furnish certain information to the transferor and transferee.
However, these reporting requirements do not apply with respect to a sale by an
individual who is a citizen of the United States and who effects that sale
through a broker. Additionally, a transferee of a Unit will be required to
furnish statements to the Internal Revenue Service, filed with their income tax
returns for the taxable year in which the purchase occurred, which set forth the
amount of the consideration paid for the Unit that is allocated to goodwill or
going concern value of the Partnership. Failure to satisfy these reporting
obligations may lead to the imposition of substantial penalties.

Constructive Termination. The Partnership will be considered to have been
terminated if there is a sale or exchange of 50% or more of the total interests
in Partnership capital and profits within a 12-month period. A termination
results in the closing of a Partnership's taxable year for all partners and the
Partnership assets are regarded as having been distributed to the partners and
reconveyed to the Partnership, which is then treated as a new Partnership. Such
a termination could result in the non-uniformity of Units for federal income tax
purposes. A termination of the Partnership will cause a termination of
Manufacturing. Such a termination could also result in penalties or loss of
basis adjustments under Section 754 of the Code if the Partnership were unable
to determine that the termination had occurred.

In the case of a Unitholder reporting on a taxable year other than a fiscal
year ending December 31, the closing of the tax year of the Partnership may
result in more than 12 months' taxable income or loss of the Partnership being
includable in his taxable income for the year of termination. In addition, each
Unitholder will realize taxable gain to the extent that any money deemed as a
result of the termination to have been distributed to him exceeds the adjusted
basis of his Units. New tax elections required to be made by the Partnership,
including a new election under Section 754 of the Code, must be made after a
constructive termination. A termination could also result in a deferral of
Partnership deductions for depreciation. In addition, a termination might either
accelerate the application of or subject the Partnership to any tax legislation
enacted prior to the termination.

Under current regulations, a termination of the Partnership would result in
a deemed distribution of the Partnership's assets to the Unitholders followed by
a deemed reconveyance of the assets to the Partnership, and the Partnership
would be treated as a new partnership. As a result of the deemed distribution,
each Unitholder would realize taxable gain to the extent that any money deemed
to have been distributed to him exceeded the adjusted basis of his Units.
Moreover, the deemed distribution and reconveyance could result in a loss of
basis adjustments under Section 754 of the Code if the Partnership were unable
to determine that the termination had occurred. Under recently proposed
regulations, which will apply only to terminations occurring after the proposed
regulations are adopted in final form, a termination of the Partnership would
result in a deemed transfer by the Partnership of its assets to a new
partnership in exchange for an interest in the new partnership followed by a
deemed distribution of interests in the new partnership to the Unitholders in
liquidation of the Partnership. Consequently, the potential tax consequences
outlined above that could result from the deemed distribution and reconveyance
of assets upon a termination subject to current regulations would not occur upon
a Partnership termination subject to the proposed regulations.

Entity-Level Collections. If the Partnership is required or elects under
applicable law to pay any federal, state or local income tax on behalf of any
Unitholder or General Partner or any former Unitholder, the General Partner is
authorized to pay those taxes from Partnership funds. To the extent feasible,
each such payment shall be treated as a current distribution in respect to the
person on whose behalf the payment was made. The General Partner is authorized
to amend the Partnership Agreement in the manner necessary to maintain
uniformity of intrinsic tax characteristics of Units and to adjust subsequent
distributions, so that after giving effect to such deemed distributions, the
priority and characterization of distributions otherwise applicable under the
Partnership Agreement is maintained as nearly as is practicable. Payments by the

90
<PAGE> 91

Partnership as described above could give rise to an overpayment of tax on
behalf of an individual partner in which event the partner could file a claim
for credit or refund.

UNIFORMITY OF UNITS

Because the Partnership cannot match transferors and transferees of Units,
uniformity of the economic and tax characteristics of the Units to a purchaser
of such Units must be maintained. In the absence of uniformity, compliance with
a number of federal income tax requirements, both statutory and regulatory,
could be substantially diminished. A lack of uniformity can result from a
literal application of Proposed Treasury Regulation Section 1.168-2(n) and
Treasury Regulation Section 1.167(c)-1(a)(6) or the legislative history of
Section 197 and from the application of the "ceiling limitation" on the
Partnership's ability to make allocations to eliminate book-tax disparities
attributable to Contributed Properties and Partnership property that has been
revalued and reflected in the partners' capital accounts ("Adjusted
Properties"). Any non-uniformity could have a negative impact on the value of a
Unitholder's interest in the Partnership.

Although Counsel is unable to opine as to the validity of such an approach,
in order to maintain uniformity, the Partnership intends to depreciate the
portion of a Section 743(b) adjustment attributable to unrealized appreciation
in the value of Contributed Property or Adjusted Property (to the extent of any
unamortized Book-Tax Disparity) using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful life applied to
the Common Basis of such property, despite its inconsistency with Proposed
Treasury Regulation Section 1.168-2(n) and Treasury Regulation Section
1.167(c)-1(a)(6) or the legislative history of Section 197. See "--Tax Treatment
of Operations--Section 754 Election." If the Partnership determines that such a
position cannot reasonably be taken, the Partnership may adopt a depreciation
and amortization convention under which all purchasers acquiring Units in the
same month would receive depreciation and amortization deductions, whether
attributable to common basis or Section 743(b) basis, based upon the same
applicable rate as if they had purchased a direct interest in the Partnership's
property. If such an aggregate approach is adopted, it may result in lower
annual depreciation and amortization deductions than would otherwise be
allowable to certain Unitholders and risk the loss of depreciation and
amortization deductions not taken in the year that such deductions are otherwise
allowable. This convention will not be adopted if the Partnership determines
that the loss of depreciation and amortization deductions will have a material
adverse effect on the Unitholders. If the Partnership chooses not to utilize
this aggregate method, the Partnership may use any other reasonable depreciation
and amortization convention to preserve the uniformity of the intrinsic tax
characteristics of any Units that would not have a material adverse effect on
the Unitholders. The Internal Revenue Service may challenge any method of
depreciating the Section 743(b) adjustment described in this paragraph. If such
a challenge were sustained, the uniformity of Units might be affected.

TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS

Ownership of Units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences.

Employee benefit plans and most other organizations exempt from federal
income tax (including individual retirement accounts and other retirement plans)
are subject to federal income tax on unrelated business taxable income.
Virtually all of the taxable income derived by such an organization from the
ownership of a Unit will be unrelated business taxable income and thus will be
taxable to such a Unitholder (subject to the $1,000 deduction any such
Unitholder is allowed against all of its unrelated business taxable income for
any taxable year).

Regulated investment companies are required to derive 90% or more of their
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. It is not anticipated
that any significant amount of the Partnership's gross income will qualify as
such income.

Non-resident aliens and foreign corporations, trusts or estates which hold
Units will be considered to be engaged in business in the United States on
account of ownership of Units and as a consequence will be

91
<PAGE> 92

required to file federal tax returns in respect of their distributive shares of
Partnership income, gain, loss or deduction and pay federal income tax at
regular rates on that income. Generally, a partnership is required to pay a
withholding tax on the portion of the Partnership's income which is effectively
connected with the conduct of a United States trade or business and which is
allocable to the foreign partners, regardless of whether any actual
distributions have been made to such partners. However, under rules applicable
to publicly-traded partnerships, the Partnership will withhold (currently at the
rate of 39.6%) on actual cash distributions made quarterly to foreign
Unitholders. Each foreign Unitholder must obtain a taxpayer identification
number from the Internal Revenue Service and submit that number to the Transfer
Agent of the Partnership on a Form W-8 in order to obtain credit for the taxes
withheld. A change in law may require the Partnership to change these
procedures.

Because a foreign corporation which owns Units will be treated as engaged
in a United States trade or business, such a Unitholder will be subject to
United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of the Partnership's earnings and
profits (as adjusted for changes in the foreign corporation's "U.S. net equity")
which are effectively connected with the conduct of a United States trade or
business. Such a tax may be reduced or eliminated by an income tax treaty
between the United States and the country with respect to which the foreign
corporate Unitholder is a "qualified resident." In addition, such a Unitholder
is subject to special information reporting requirements under Section 6038C of
the Code.

Under an Internal Revenue Service ruling, a foreign Unitholder who sells or
otherwise disposes of a Unit will be subject to federal income tax on gain
realized on the disposition of such Unit to the extent that such gain is
effectively connected with a United States trade or business of the foreign
Unitholder. If less than all of any such gain is so taxable, then Section 897 of
the Code may increase the portion of any gain recognized by a foreign Unitholder
which is subject to United States income tax if that foreign Unitholder has held
more than 5% in value of the Units during the five-year period ending on the
date of the disposition or if the Units are not regularly traded on an
established securities market at the time of the disposition. The Partnership
does not expect that a material portion of any such gain recognized by a foreign
Unitholder will avoid United States taxation.

ADMINISTRATIVE MATTERS

Partnership Information Returns and Audit Procedures. The Partnership
furnishes to each Unitholder, within 90 days after the close of each calendar
year, certain tax information, including a Schedule K-1, which sets forth each
Unitholder's allocable share of the Partnership's income, gain, loss and
deduction for the preceding Partnership taxable year. In preparing this
information, which will generally not be reviewed by counsel, the General
Partner will use various accounting and reporting conventions, some of which
have been mentioned in the previous discussion, to determine the respective
Unitholders' allocable share of income, gain, loss and deduction. There is no
assurance that any of those conventions will yield a result which conforms to
the requirements of the Code, regulations or administrative interpretations of
the Internal Revenue Service or that they will not be challenged successfully by
the Internal Revenue Service.

The federal income tax information returns filed by the Partnership may be
audited by the Internal Revenue Service. Adjustments resulting from any such
audit may require each Unitholder to adjust a prior year's tax liability, and
could result in an audit of the Unitholder's own return. Any audit of a
Unitholder's return could result in adjustments of non-Partnership as well as
Partnership items.

Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the
Internal Revenue Service, and tax settlement proceedings. The tax treatment of
partnership items of income, gain, loss and deduction are determined at the
partnership level in a unified partnership proceeding rather than in separate
proceedings with the partners. The Code provides for one partner to be
designated as the "Tax Matters Partner" for these purposes. The Partnership
Agreement appoints the General Partner as the Tax Matters Partner of the
Partnership.

The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to

92
<PAGE> 93

Partnership items. The Tax Matters Partner may bind a Unitholder with less than
a 1% profits interest in the Partnership to a settlement with the Internal
Revenue Service unless such Unitholder elects, by filing a statement with the
Internal Revenue Service, not to give such authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review (by which all the Unitholders
are bound) of a final partnership administrative adjustment and, if the Tax
Matters Partner fails to seek judicial review, such review may be sought by any
Unitholder having at least 1% interest in the profits of the Partnership and by
the Unitholders having in the aggregate at least a 5% profits interest. However,
only one action for judicial review will go forward, and each Unitholder with an
interest in the outcome may participate.

A Unitholder must file a statement with the Internal Revenue Service
identifying the treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on the Partnership's return.
Intentional or negligent disregard of the consistency requirement may subject a
Unitholder to substantial penalties. Under the 1995 Proposed Legislation,
partners in electing large partnerships, such as the Partnership, would be
required to treat all Partnership items in a manner consistent with the
Partnership return.

Under the reporting provisions of the 1995 Proposed Legislation, each
partner of an electing large partnership would take into account separately his
share of the following items, determined at the partnership level; (1) taxable
income or loss from passive loss limitation activities; (2) taxable income or
loss from other activities (such as portfolio income or loss); (3) net capital
gains to the extent allocable to passive loss limitation activities and other
activities; (4) tax exempt interest; (5) a net alternative minimum tax
adjustment separately computed for passive loss limitation activities and other
activities; (6) general credits; (7) low-income housing credit; (8)
rehabilitation credit; (9) foreign income taxes; (10) credit for producing fuel
from a nonconventional source; and (11) any other items the Secretary of
Treasury deems appropriate.

The House version of the 1995 Proposed Legislation would also make a number
of changes to the tax compliance and administrative rules relating to
partnerships. One provision would require that each partner in a large
partnership, such as the partnership, take into account his share of any
adjustments to partnership items in the year such adjustments are made. Under
current law, adjustments relating to partnership items for a previous taxable
year are taken into account by those persons who were partners in the previous
taxable year. Alternatively, under the 1995 Proposed Legislation, a partnership
could elect to or, in some circumstances, could be required to, directly pay the
tax resulting from any such adjustments. In either case, therefore, Unitholders
could bear significant economic burdens associated with tax adjustments relating
to periods predating their acquisition of Units.

It cannot be predicted whether or in what form the 1995 Proposed
Legislation, or other tax legislation that might affect Unitholders, will be
enacted. However, if tax legislation is enacted which includes provisions
similar to those discussed above, a Unitholder might experience a reduction in
cash distributions.

Nominee Reporting. Persons who hold an interest in the Partnership as a
nominee for another person are required to furnish to the Partnership (a) the
name, address and taxpayer identification number of the beneficial owner and the
nominee; (b) whether the beneficial owner is (i) a person that is not a United
States person, (ii) a foreign government, an international organization or any
wholly-owned agency or instrumentality of either of the foregoing or (iii) a
tax-exempt entity; (c) the amount and description of Units held, acquired or
transferred for the beneficial owner; and (d) certain information including the
dates of acquisitions and transfers, means of acquisitions and transfers, and
acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and certain
information on Units they acquire, hold or transfer for their own account. A
penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is
imposed by the Code for failure to report such information to the Partnership.
The nominee is required to supply the beneficial owner of the Units with the
information furnished to the Partnership.

Registration as a Tax Shelter. The Code requires that "tax shelters" be
registered with the Secretary of the Treasury. The General Partner has concluded
that no registration of the Partnership as a tax shelter is required because the
Partnership is not a tax shelter under temporary Treasury Regulation Section
301.6111-IT, Q&A 4A. Under the temporary Treasury Regulations, an investment
will not constitute a tax shelter

93
<PAGE> 94

unless a person could reasonably infer, from representations made or to be made
in connection with any offer for sale of any interest in the investment, that
the tax shelter ratio may be greater than 2 to 1 as of the close of any of the
first 5 years ending after the date on which the investment is offered for sale.
The General Partner does not believe that any such inference could reasonably be
drawn from the representations that will be made in connection with the offering
for sale of Units. In general, the tax shelter ratio means the ratio that the
aggregate deductions potentially allowable to a Unitholder bears to the purchase
price paid by the Unitholder for his Units.

It is possible, however, that the Internal Revenue Service could disagree
with the Partnership as to the requirement to register at the time of this
offering. The penalty for failure to register a "tax shelter" is an amount equal
to the greater of (1) $500 or (2) 1% of the aggregate amount invested in such
"tax shelter."

Accuracy-Related Penalties. An additional tax equal to 20% of the amount
of any portion of an underpayment of tax which is attributable to one or more of
certain listed causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and substantial valuation
misstatements, is imposed by the Code. No penalty will be imposed, however, with
respect to any portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in good faith with
respect to that portion.

A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return (i)
with respect to which there is, or was, "substantial authority" or (ii) as to
which there is a reasonable basis and the pertinent facts of such position are
disclosed on the return. Certain more stringent rules apply to "tax shelters,"a
term that in this context, does not appear to include the Partnership. If any
Partnership item of income, gain, loss or deduction included in the distributive
shares of Unitholders might result in such an "understatement" of income for
which no "substantial authority" exists, the Partnership must disclose the
pertinent facts on its return. In addition, the Partnership will make a
reasonable effort to furnish sufficient information for Unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.

A substantial valuation misstatement exists if the value of any property
(or the adjusted basis of any property) claimed on a tax return is 200% or more
of the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement exceeds $5,000 ($10,000 for most
corporations). If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.

CHANGES IN FEDERAL INCOME TAX LAWS

The 1995 Proposed Legislation that was passed by Congress on November 19,
1995, as part of the Revenue Reconciliation Act of 1995, would have altered the
tax reporting system and the deficiency collection system applicable to large
partnerships (generally defined as electing partnerships with more than 100
partners) and would have made certain additional changes to the treatment of
large partnerships, such as the Partnership. Certain of the proposed changes
have been discussed previously in this section. The 1995 Proposed Legislation
was generally intended to simplify the administration of the tax rules governing
large partnerships such as the Partnership. President Clinton vetoed the 1995
Proposed Legislation on December 6, 1995.

The 1996 Proposed Legislation, currently pending in Congress, would affect
the taxation of certain financial products, including partnership interests. The
1996 Proposed Legislation would treat a taxpayer as having sold an "appreciated"
partnership interest (one in which gain would be recognized if such interest
were sold) if the taxpayer or related persons enter into one or more positions
with respect to the same or substantially identical property which, for some
period, substantially eliminates both the risk of loss and opportunity for gain
on the appreciated financial position (including selling "short against the box"
transactions).

94
<PAGE> 95

As of the date of this Prospectus, it is not possible to predict whether
any of the changes set forth in the 1995 Proposed Legislation or the 1996
Proposed Legislation or any other changes in the federal income tax laws that
would impact the Partnership and the Unitholders will ultimately be enacted or,
if enacted, what form they will take, what the effective dates will be, and
what, if any, transition rules will be provided.

OTHER TAX CONSIDERATIONS

In addition to federal income taxes, Unitholders will be subject to other
taxes, such as state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the Partnership does business or owns property. Although
an analysis of those various taxes is not presented here, each prospective
Unitholder should consider their potential impact on his investment in the
Partnership. The Partnership will own property and conduct business in Arkansas,
Idaho, Louisiana, Montana, Texas and Washington and thus the General Partner
anticipates that substantially all of the Partnership's income will be generated
in those states. The General Partner has previously filed and intends to
continue filing composite partnership returns in the states in which income tax
filings are required. Therefore, Unitholders that are not residents of the
states in which the Partnership does business should have no additional filing
requirements due to their ownership of Units. However, if the General Partner
were to discontinue composite filing, a Unitholder may be required to file state
income tax returns and to pay taxes in those states (other than Washington and
Texas) and may be subject to penalties for failure to comply with those
requirements. The State of Washington and the State of Texas do not currently
impose an income tax, although the State of Texas does impose a franchise tax on
corporations and limited liability companies. In certain states, tax losses may
not produce a tax benefit in the year incurred (if, for example, the Partnership
has no income from sources within that state) and also may not be available to
offset income in subsequent taxable years. In addition, some states could
require the Partnership, or the Partnership could elect, to withhold a
percentage of income from amounts to be distributed to a Unitholder who is not a
resident of the state. Withholding, the amount of which may be greater or less
than a particular Unitholder's income tax liability to the state, generally does
not relieve the non-resident Unitholder from the obligation to file an income
tax return. Amounts paid in connection with filing composite returns or any
amounts withheld may be treated as if distributed to Unitholders for purposes of
determining the amounts distributed by the Partnership. See "--Disposition of
Units--Entity-Level Collections."

Each Unitholder should investigate the legal and tax consequences, under
the laws of pertinent states and localities, of his investment in the
Partnership. Accordingly, each prospective Unitholder should consult his own tax
counsel or other advisor with regard to those matters. Further, it is the
responsibility of each Unitholder to file all state and local, as well as
federal, tax returns that may be required of such Unitholder. Counsel has not
rendered an opinion on the state or local tax consequences of an investment in
the Partnership.

95
<PAGE> 96

INVESTMENT IN THE PARTNERSHIP BY
EMPLOYEE BENEFIT PLANS

An investment in the Partnership by an employee benefit plan is subject to
certain additional considerations because the investments of such plans are
subject to the fiduciary responsibility and prohibited transaction provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
restrictions imposed by Section 4975 of the Code. As used herein, the term
"employee benefit plan" includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or Individual Retirement Accounts established
or maintained by an employer or employee organization. Among other things,
consideration should be given to (a) whether such investment is prudent under
Section 404(a)(1)(B) of ERISA; (b) whether in making such investment, such plan
will satisfy the diversification requirement of Section 404(a)(1)(C) of ERISA;
and (c) whether such investment will result in recognition of unrelated business
taxable income by such plan and, if so, the potential after-tax investment
return. See "Tax Considerations--Tax-Exempt Organizations and Certain Other
Investors." The person with investment discretion with respect to the assets of
an employee benefit plan (a "fiduciary") should determine whether an investment
in the Partnership is authorized by the appropriate governing instrument and is
a proper investment for such plan.

Section 406 of ERISA and Section 4975 of the Code (which also applies to
Individual Retirement Accounts that are not considered part of an employee
benefit plan) prohibit an employee benefit plan from engaging in certain
transactions involving "plan assets" with parties that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.

In addition to considering whether the purchase of Units is a prohibited
transaction, a fiduciary of an employee benefit plan should consider whether
such plan will, by investing in the Partnership, be deemed to own an undivided
interest in the assets of the Partnership, with the result that the General
Partner also would be a fiduciary of such plan and the operations of the
Partnership would be subject to the regulatory restrictions of ERISA, including
its prohibited transaction rules, as well as the prohibited transaction rules of
the Code.

The Department of Labor regulations provide guidance with respect to
whether the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under certain circumstances. Pursuant to
these regulations, an entity's assets would not be considered to be "plan
assets" if, among other things, (a) the equity interest acquired by employee
benefit plans are publicly offered securities--i.e., the equity interests are
widely held by 100 or more investors independent of the issuer and each other,
freely transferable and registered pursuant to certain provisions of the federal
securities laws, (b) the entity is an "operating company"--i.e., it is primarily
engaged in the production or sale of a product or service other than the
investment of capital either directly or through a majority owned subsidiary or
subsidiaries or (c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the value of each
class of equity interest (disregarding certain interests held by the General
Partner, their affiliates, and certain other persons) is held by the employee
benefit plans referred to above, Individual Retirement Accounts and other
employee benefit plans not subject to ERISA (such as governmental plans). The
Partnership's assets should not be considered "plan assets" under these
regulations because it is expected that the investment will satisfy the
requirements in (a) and (b) above and may also satisfy the requirements in (c).

Plan fiduciaries contemplating a purchase of Units should consult with
their own counsel regarding the consequences under ERISA and the Code in light
of the serious penalties imposed on persons who engage in prohibited
transactions or other violations.

96
<PAGE> 97

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Partnership, the General Partner and each
of the underwriters named below (the "Underwriters"), for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Dean Witter Reynolds
Inc., PaineWebber Incorporated, Smith Barney Inc. and D.A. Davidson & Co. are
acting as representatives (the "Representatives"), the Partnership has agreed to
sell to each of the Underwriters, and each of the Underwriters has agreed to
purchase from the Partnership, the number of Units set forth below opposite its
name below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF UNITS
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................................... 920,000
Dean Witter Reynolds Inc.......................................................... 920,000
PaineWebber Incorporated.......................................................... 920,000
Smith Barney Inc.................................................................. 920,000
D.A. Davidson & Co................................................................ 920,000
Lehman Brothers Inc............................................................... 100,000
Oppenheimer & Co., Inc............................................................ 100,000
Prudential Securities Incorporated................................................ 100,000
Jensen Securities Co. ............................................................ 50,000
Ragen MacKenzie Incorporated...................................................... 50,000
Stifel, Nicolaus & Company, Incorporated.......................................... 50,000
H. G. Wellington & Co. Inc........................................................ 50,000
---------
Total................................................................ 5,100,000
=========
</TABLE>

The Representatives have advised the Partnership that the Underwriters
propose to offer the Units to the public initially at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $.78 per share. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $.10 per share
on sales to certain other dealers. After the commencement of this offering, the
public offering price, concession and discount may be changed.

The Partnership has granted the Underwriters an option exercisable by the
Representatives, to purchase up to 765,000 additional Units at the public
offering price, less the underwriting discount. Such option, which expires 30
days after the date of this Prospectus, may be exercised solely to cover
over-allotments. To the extent the Representatives exercise such option, each of
the Underwriters will be obligated, subject to certain conditions, to purchase
approximately the same percentage of the option Units as the number of Units to
be purchased initially by that Underwriter bears to the total number of Units to
be purchased initially by the Underwriters.

97
<PAGE> 98

The Partnership and the General Partner have agreed to indemnify the
Underwriters and others against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters and such
others may be required to make in respect thereof.

The Partnership, its direct and indirect general partners and their
respective executive officers and directors have agreed, subject to certain
exceptions, not to, directly or indirectly, offer, sell, grant any option with
respect to, pledge, hypothecate or dispose of any Units or securities
convertible into or exchangeable or exercisable for Units (except the Units sold
to the Underwriters pursuant to the Purchase Agreement and Units issuable in
connection with the incentive plans existing on the date of this Prospectus)
without the prior written consent of Merrill Lynch, for a period of 120 days
after the date of this Prospectus.

Because the National Association of Securities Dealers, Inc. (the "NASD")
views the Units offered hereby as interests in a direct participation program,
this offering is being made in compliance with Rule 2810 of the NASD's Conduct
Rules. Investor suitability of the Units should be judged similarly to the
suitability of other securities which are listed for trading on a national
securities exchange.

Certain of the Underwriters and their respective affiliates engage in
transactions with and from time to time have performed services for the
Partnership in the ordinary course of business. Merrill Lynch has served as a
financial advisor to the Partnership in connection with the Riverwood
Acquisition and other matters, for which it will receive customary compensation.

Mr. Ian B. Davidson, Chairman and Chief Executive Officer of D.A. Davidson
& Co., which firm is acting as one of the Representatives, is a Director of
Corp. I and Chairman of the Conflicts Committee. See "Management."

LEGAL MATTERS

The validity of the Units will be passed upon for the Partnership by
Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters in connection with
the Units will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom, Los Angeles, California.

EXPERTS

The combined balance sheets as of December 31, 1995 and 1994 and the
combined statements of income and cash flows for each of the three years in the
period ended December 31, 1995 of Plum Creek Timber Company, L.P. and the
statements of assets and liabilities as of December 31, 1995 and 1994 and the
statements of revenues and expenses and cash flows for each of the three years
in the period ended December 31, 1995 of Riverwood U.S. Timberlands/Wood
Products Division included in this Prospectus or incorporated in this Prospectus
by reference have been so included or incorporated in this Prospectus by
reference in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

98
<PAGE> 99

PLUM CREEK TIMBER COMPANY, L.P.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLUM CREEK TIMBER COMPANY, L.P. COMBINED FINANCIAL STATEMENTS:
Report of Independent Accountants.................................................. F-2
Combined Statement of Income -- Years Ended December 31, 1993, 1994, 1995, and Six
Months Ended June 30, 1995 and 1996 (unaudited)................................. F-3
Combined Balance Sheet -- December 31, 1994 and 1995, and June 30, 1995 and 1996
(unaudited)..................................................................... F-4
Combined Statement of Cash Flows -- Years Ended December 31, 1993, 1994, 1995, and
Six Months Ended June 30, 1995 and 1996 (unaudited)............................. F-5
Notes to Combined Financial Statements............................................. F-6
RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION FINANCIAL STATEMENTS:
Report of Independent Accountants.................................................. F-16
Statements of Assets and Liabilities -- December 31, 1994 and 1995................. F-17
Statements of Revenues and Expenses -- Years Ended December 31, 1993, 1994, and
1995............................................................................ F-18
Statements of Cash Flows -- Years Ended December 31, 1993, 1994, and 1995.......... F-19
Notes to Financial Statements...................................................... F-20
Condensed Statements of Assets and Liabilities -- June 29, 1996 and December 31,
1995 (unaudited)................................................................ F-27
Condensed Statements of Revenues and Expenses -- Three Months Ended June 29, 1996,
March 27, 1996 and July 1, 1995 and Six Months Ended July 1, 1995 (unaudited)... F-28
Condensed Statements of Cash Flows -- Three Months Ended June 29, 1996, March 27,
1996 and July 1, 1995 and Six Months Ended July 1, 1995 (unaudited)............. F-29
Notes to Condensed Financial Statements............................................ F-30
</TABLE>

F-1
<PAGE> 100

REPORT OF INDEPENDENT ACCOUNTANTS

To the Unitholders and Directors of the General Partner of
Plum Creek Timber Company, L.P.

We have audited the accompanying combined balance sheet of Plum Creek
Timber Company, L.P. as of December 31, 1995 and 1994, and the related combined
statements of income and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Plum Creek Timber
Company, L.P. at December 31, 1995 and 1994, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Seattle, Washington
January 23, 1996

F-2
<PAGE> 101

PLUM CREEK TIMBER COMPANY, L. P.

COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................ $501,006 $578,657 $585,074 $283,466 $266,438
-------- -------- -------- -------- --------
Costs and expenses:
Cost of goods sold................ 338,759 375,782 388,450 187,912 190,903
Selling, general and
administrative................. 35,690 38,741 37,648 17,941 15,387
-------- -------- -------- -------- --------
Total costs and expenses....... 374,449 414,523 426,098 205,853 206,290
-------- -------- -------- -------- --------
Operating income.................... 126,557 164,134 158,976 77,613 60,148
Interest expense.................... (36,737) (47,410) (46,836) (23,754) (23,061)
Interest income..................... 2,203 889 1,073 621 331
Other expense--net.................. (474) (4,477) (1,910) (984) (83)
-------- -------- -------- -------- --------
Income before income taxes.......... 91,549 113,136 111,303 53,496 37,335
Provision for income taxes.......... 105 924 572 570 443
-------- -------- -------- -------- --------
Net income.......................... $ 91,444 $112,212 $110,731 $ 52,926 $ 36,892
General Partner interest............ 8,837 16,325 22,487 10,531 11,537
-------- -------- -------- -------- --------
Net income allocable to
Unitholders....................... $ 82,607 $ 95,887 $ 88,244 $ 42,395 $ 25,355
======== ======== ======== ======== ========
Net income per Unit................. $ 1.92 $ 2.36 $ 2.17 $ 1.04 $ 0.62
======== ======== ======== ======== ========
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-3
<PAGE> 102

PLUM CREEK TIMBER COMPANY, L. P.

COMBINED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 60,942 $ 87,604 $ 61,849
Accounts receivable...................................... 26,866 31,750 38,442
Inventories.............................................. 54,685 47,366 44,946
Timber contract deposits................................. 2,823 2,320 1,646
Other current assets..................................... 4,013 4,949 7,809
-------- -------- --------
149,329 173,989 154,692
Timber and timberlands--net................................ 495,462 467,992 454,449
Property, plant and equipment--net......................... 162,017 166,152 162,996
Other assets............................................... 19,412 17,953 17,176
-------- -------- --------
Total assets..................................... $826,220 $826,086 $789,313
======== ======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt........................ $ 13,000 $ 14,100 $ 17,400
Accounts payable......................................... 13,231 15,771 12,361
Interest payable......................................... 7,681 7,543 7,313
Wages payable............................................ 9,424 11,513 6,897
Taxes payable............................................ 6,094 5,122 5,827
Workers' compensation liabilities........................ 2,610 2,318 2,014
Other current liabilities................................ 6,778 6,081 7,465
-------- -------- --------
58,818 62,448 59,277
Long-term debt............................................. 433,900 419,800 402,400
Lines of credit............................................ 97,500 97,500 97,500
Workers' compensation liabilities.......................... 9,367 8,405 8,685
Other liabilities.......................................... 3,658 4,065 2,545
-------- -------- --------
Total liabilities................................ 603,243 592,218 570,407
-------- -------- --------
Commitments and contingencies
PARTNERS' CAPITAL
Limited Partners' Units.................................... 223,028 234,117 219,676
General Partner............................................ (51) (249) (770)
-------- -------- --------
Total partners' capital.................................. 222,977 233,868 218,906
-------- -------- --------
Total liabilities and partners' capital.......... $826,220 $826,086 $789,313
======== ======== ========
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-4
<PAGE> 103

PLUM CREEK TIMBER COMPANY, L. P.

COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 91,444 $ 112,212 $ 110,731 $ 52,926 $ 36,892
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization....................... 38,806 54,143 54,097 25,692 26,366
Gain on property dispositions--net... (7,708) (419) (2,986) (2,424) (3,853)
Working capital changes:
Accounts receivable................ (14,183) 1,845 (4,884) (2,578) (6,692)
Inventories........................ 1,946 (6,583) 7,319 17,059 2,420
Timber contract deposits........... (510) 164 503 1,144 674
Other current assets............... (3,662) 1,386 (936) (830) (2,860)
Accounts payable................... 3,657 193 2,540 (1,580) (3,410)
Interest payable................... 742 4,676 (138) (171) (230)
Wages payable...................... 2,674 (645) 2,089 (1,320) (4,616)
Taxes payable...................... 2,039 446 (972) (133) 705
Workers' compensation
liabilities..................... (72) (292) (642) (304)
Other current liabilities.......... 3,620 (1,560) (697) (535) 1,384
Funding of benefit plans--net........ (9,198) 2,411 994 1,096
Other................................ (3,452) (1,545) (3,571) (2,707) (959)
--------- --------- --------- --------- ---------
Net cash provided by operating
activities........................... 115,341 155,115 165,214 84,895 46,613
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Additions to properties................ (284,612) (25,837) (30,683) (14,004) (10,273)
Proceeds from property dispositions.... 6,496 4,472 6,777 4,430 3,859
Other.................................. 458 (1,806)
--------- --------- --------- --------- ---------
Net cash used in investing
activities........................... (278,116) (20,907) (25,712) (9,574) (6,414)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Cash distributions..................... (61,164) (81,790) (99,840) (47,986) (51,854)
Borrowings on lines of credit.......... 260,000 368,345 399,000 114,500 276,500
Payments on lines of credit............ (530,846) (399,000) (114,500) (276,500)
Issuance of long-term debt............. 150,000
Retirement of long-term debt........... (8,600) (13,000) (13,000) (13,000) (14,100)
Redemption of deferred participation
interests............................ (63,018)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities................. 127,218 (107,291) (112,840) (60,986) (65,954)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ (35,557) 26,917 26,662 14,335 (25,755)
Cash and cash equivalents:
Beginning of period.................... 69,582 34,025 60,942 60,942 87,604
--------- --------- --------- --------- ---------
End of period.......................... $ 34,025 $ 60,942 $ 87,604 $ 75,277 $ 61,849
========= ========= ========= ========= =========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid.......................... $ 35,995 $ 42,734 $ 46,904
Income taxes paid--net................. $ 197 $ 973 $ 952
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-5
<PAGE> 104

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS

(ALL AMOUNTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 ARE
UNAUDITED.)

NOTE 1. ACCOUNTING POLICIES

BASIS OF PRESENTATION. Plum Creek Timber Company, L.P. (the
"Partnership"), a Delaware limited partnership, Plum Creek Manufacturing, L.P.
("Manufacturing"), and Plum Creek Marketing, Inc. ("Marketing"), own, manage and
operate 2.0 million acres of timberland and ten wood products conversion
facilities in Montana, Washington and Idaho. The Partnership owns 98 percent of
Manufacturing and 96 percent of Marketing. Plum Creek Management Company, L.P.
(the "General Partner"), manages the businesses of the Partnership,
Manufacturing and Marketing and owns the remaining two percent general partner
interest of Manufacturing and four percent of Marketing. As used herein,
"Company" refers to the combined entities of the Partnership, Manufacturing and
Marketing. "Resources Segment" refers to the timber and land management business
of the Partnership, and "Manufacturing Segment" refers to the combined
businesses of Manufacturing and Marketing.

The Resources Segment grows and harvests timber for sale in export markets,
primarily Pacific Rim countries, and domestic markets, primarily in Washington,
Idaho and Montana. The Manufacturing Segment produces a wide variety of lumber,
plywood and medium density fiberboard ("MDF") products. The Manufacturing
Segment targets these products to retail home centers and various specialty
niche markets which are less cyclical than the traditional housing related
markets. The principal markets for lumber and plywood products are in the United
States. MDF markets primarily consist of North America and, to a lesser extent,
Pacific Rim countries.

The combined financial statements of the Company include all the accounts
of the Partnership, Manufacturing and Marketing. All significant intercompany
transactions have been eliminated in combination. Certain financial statement
reclassifications have been made to the 1993, 1994, and June 30, 1995 amounts
presented for comparability purposes and have no impact on net income.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NET INCOME PER UNIT. Net income per Unit is calculated using the weighted
average number of Units outstanding, net of redeemed Units, plus, in 1993, any
unredeemed Deferred Participation Interests ("DPIs") divided into the combined
Partnership net income, after adjusting for the General Partner interest. The
weighted average number of Units outstanding was 43,084,327, 40,608,300, and
40,608,300 for the years ended December 31, 1993, 1994 and 1995, respectively.
For the six month periods ended June 30, 1995 and 1996, the weighted average
number of Units outstanding was 40,608,300.

REVENUE RECOGNITION. Revenues received from the sale of logs, wood
products and by-products, primarily wood chips, are generally recorded as
revenue at the time of shipment. Sales are denominated in U.S. dollars.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.

INVENTORIES. Logs, work-in-process, and finished goods inventories are
stated at the lower of cost or market on the last-in, first-out ("LIFO") method.
Cost for manufactured inventories includes raw materials, labor, supplies,
energy, depreciation and production overhead. Cost of log inventories includes
timber depletion, stumpage, associated logging and harvesting costs, road costs
and production overhead. The average cost method is used to value the Company's
supplies inventories.

F-6
<PAGE> 105

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

TIMBER AND TIMBERLANDS. Timber and timberlands, including logging roads,
are stated at cost less depletion for timber previously harvested and
accumulated amortization. Cost of the Partnership's timber harvested is
determined based on the volume of timber harvested in relation to the amount of
estimated recoverable timber. The Partnership estimates its timber inventory
using statistical information and data obtained from physical measurements, site
maps, photo-types and other information gathering techniques. The cost of
logging roads is amortized over the estimated useful life on a straight-line
basis.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
cost. Improvements and replacements are capitalized. Depreciation is provided
for on a straight-line basis for buildings and on a unit-of-production basis for
machinery and equipment, which approximates a straight-line basis. Maintenance
and repairs necessary to maintain properties in operating condition are expensed
as incurred. The cost and related accumulated depreciation of property sold or
retired are removed from the accounts and any gain or loss is recorded.

INCOME TAXES. The Partnership and Manufacturing are not subject to federal
income tax and their income or loss is included in the tax returns of individual
Unitholders. The Partnership files composite returns in the states in which it
does business, paying taxes for nonresident Unitholders. Taxes paid for
nonresident Unitholders are included in other expense. Marketing, as a separate
taxable corporation, provides for income taxes on a separate company basis.
Marketing provides for deferred taxes in order to reflect the tax consequences
in future years of the difference between the financial statement and tax basis
of assets and liabilities at year-end.

UNIT-BASED COMPENSATION PLANS. The Company accounts for Unit-based
compensation plans under the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"). In October 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"), which is effective for years
beginning after December 15, 1995. FAS 123 establishes a fair value based method
of accounting for stock-based compensation plans and encourages entities to
adopt that method in place of the provisions of APB 25. The Company intends to
continue to apply the provisions of APB 25 in recognizing compensation expense
related to Unit-based compensation plans and disclose in the footnotes in 1996
the impact on net income had FAS 123 been adopted for expense recognition
purposes. See Note 10 to Notes to Combined Financial Statements for discussion
of the above referenced plans.

NOTE 2. ACCOUNTS RECEIVABLE

Accounts receivable were presented net of allowances for doubtful accounts
of $1,160,000 and $1,316,000 at December 31, 1994 and 1995, respectively.

NOTE 3. INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials (logs)................................ $25,908 $18,967 $13,227
Work-in-process..................................... 5,349 5,798 7,226
Export logs......................................... 1,274 420 413
Finished goods...................................... 16,485 16,012 17,290
------- ------- -----------
49,016 41,197 38,156
Supplies............................................ 5,669 6,169 6,790
------- ------- -----------
Total..................................... $54,685 $47,366 $44,946
======= ======= =========
</TABLE>

F-7
<PAGE> 106

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Excluding supplies, which are valued at average cost, the cost of the LIFO
inventories valued at the lower of average cost or market (which approximates
current cost) at December 31, 1994 and 1995 was $54.9 million and $46.3 million,
respectively, and $44.0 million at June 30, 1996.

NOTE 4. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT

Timber and timberlands consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Timber and logging roads--net..................... $450,956 $423,475 $ 409,312
Timberlands....................................... 44,506 44,517 45,137
-------- -------- --------
Timber and timberlands--net....................... $495,462 $467,992 $ 454,449
======== ======== ========
</TABLE>

Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land, buildings and improvements................. $ 47,429 $ 50,056 $ 50,476
Machinery and equipment.......................... 208,085 227,598 234,430
-------- --------- ---------
255,514 277,654 284,906
Accumulated depreciation......................... (93,497) (111,502) (121,910)
-------- --------- ---------
Property, plant and equipment--net............... $162,017 $ 166,152 $ 162,996
======== ========= =========
</TABLE>

NOTE 5. BORROWINGS

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Notes due 2007............................. $151,800 $145,200 $ 138,600
Senior Notes due 2009............................. 150,000 150,000 150,000
First Mortgage Notes.............................. 145,100 138,700 131,200
Lines of Credit................................... 97,500 97,500 97,500
-------- -------- --------
Total long-term debt.............................. 544,400 531,400 517,300
Less: current portion............................. (13,000) (14,100) (17,400)
-------- -------- --------
Long-term portion................................. $531,400 $517,300 $ 499,900
======== ======== ========
</TABLE>

On August 1, 1994, the Partnership issued $150 million of senior notes due
in full on August 1, 2009 (the "Senior Notes due 2009") which bear interest at
8.73%, payable semi-annually. The proceeds obtained from the issuance of the
Senior Notes due 2009 were used to refinance a portion of the $260 million Line
of Credit incurred to finance the November 1, 1993 Montana Timberland
Acquisition.

The Senior Notes due 2007 and the First Mortgage Notes bear interest of
11.125%, payable semi-annually. The Senior Notes due 2007, the Senior Notes due
2009 and the First Mortgage Notes (collectively, the "Note Agreements") are
redeemable prior to maturity subject to a premium on redemption, which is based
upon interest rates of U.S. Treasury securities having similar average maturity
as the Note Agreements. At December 31, 1994 and 1995, the premium that would
have been due upon early retirement would have approximated $57 million and $119
million, respectively. The two series of senior notes are unsecured. The First
Mortgage Notes are obligations of Manufacturing and are collateralized by the
property, plant and equipment of Manufacturing and are guaranteed by the
Partnership.

F-8
<PAGE> 107

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The Partnership has two unsecured revolving lines of credit ("Lines of
Credit") with a group of banks that permit the Partnership to borrow up to $135
million for general corporate purposes, including up to $5 million of standby
letters of credit issued on behalf of the Partnership or Manufacturing. The
Lines of Credit bear a floating rate of interest (6.9% and 6.5% as of December
31, 1994 and 1995, respectively). One line of credit allows the Partnership to
borrow $100 million through October 31, 2000, of which $82.5 million was
outstanding at December 31, 1995 and June 30, 1996. The other line of credit
allows the Partnership to borrow $35 million through October 28, 1996 (any
borrowings outstanding at that time are payable in quarterly installments, at
the option of the Partnership, due January 1997 through October 1998), of which
$15 million was outstanding at December 31, 1995 and June 30, 1996. The $15
million was classified as long-term debt due in 2000 due to the Company's intent
and ability to finance these borrowings on a long-term basis. As of December 31,
1995 and June 30, 1996, there were letters of credit outstanding in the amount
of $0.8 million. As of January 4, 1996, all borrowings on the Lines of Credit
outstanding at December 31, 1995 were repaid. As of July 1, 1996, $61.0 million
of borrowings on the Lines of Credit outstanding at June 30, 1996 were repaid.

The annual principal payments on the Note Agreements and mandatory
principal payments under the Lines of Credit are as follows (in thousands):

<TABLE>
<CAPTION>
NOTE LINES OF
AGREEMENTS CREDIT
---------- --------
<S> <C> <C>
1996........................................................... $ 14,100
1997........................................................... 17,400
1998........................................................... 18,400
1999........................................................... 18,400
2000........................................................... 26,950 $ 97,500
2001 through 2007.............................................. 26,950
2009........................................................... 150,000
</TABLE>

All principal and interest payments due under the Note Agreements and Lines
of Credit are nonrecourse to the General Partner.

The Note Agreements and the Lines of Credit contain certain restrictive
covenants, including limitations of harvest levels, sale of assets, cash
distributions and the amount of future indebtedness. The Company was in
compliance with such covenants at December 31, 1994 and 1995. The First Mortgage
Notes limit distributions from the Manufacturing Segment to the Partnership.

NOTE 6. FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents approximate fair value
due to the short-term maturities of these instruments. The estimated fair value
of the Company's debt, based on current interest rates for similar obligations
with like maturities, was approximately $570 million and $615 million and was
carried at $544 million and $531 million as of December 31, 1994 and 1995,
respectively.

F-9
<PAGE> 108

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7. PARTNERS' CAPITAL

The changes in Partners' Capital were as follows (in thousands):

<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS DPIS PARTNER TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
January 1, 1993......................... $211,127 $ 15,000 $ (834) $225,293
Net income.............................. 82,607 8,837 91,444
Cash distributions...................... (52,791) (8,373) (61,164)
Redemption of DPIs...................... (48,018) (15,000) (63,018)
-------- -------- -------- --------
December 31, 1993....................... 192,925 (370) 192,555
Net income.............................. 95,887 16,325 112,212
Cash distributions...................... (65,784) (16,006) (81,790)
-------- -------- --------
December 31, 1994....................... 223,028 (51) 222,977
Net income.............................. 88,244 22,487 110,731
Cash distributions...................... (77,155) (22,685) (99,840)
-------- -------- -------- --------
December 31, 1995....................... $234,117 $ $ (249) $233,868
======== ======== ======== ========
</TABLE>

The total number of Units outstanding at December 31, 1994 and 1995 was
40,608,300. At January 1, 1993 there were 1.25 million DPIs (prior to the 1993
three-for-one Unit split) outstanding. The DPIs were redeemed on August 30,
1993.

In accordance with the Partnership Agreement, the General Partner is
authorized to make quarterly cash distributions. For the years ended December
31, 1993, 1994 and 1995, the General Partner declared $1.38, $1.67 and $1.96 per
Unit, respectively, to be paid to the Partnership's Unitholders. If quarterly
cash distributions exceed $0.21 2/3 per Unit, the General Partner is provided
with an incentive distribution. See Note 10 to Notes to Combined Financial
Statements.

NOTE 8. INCOME TAXES

The provision for income taxes was as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current Federal............................................... $ 49 $829 $464
Current State................................................. 56 95 108
---- ---- ----
Total............................................... $105 $924 $572
==== ==== ====
</TABLE>

Reconciliation of the federal statutory rate to the effective income tax
rate was as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 35.0%
State tax net of federal tax benefit........................ 0.1 0.1 0.1
Nontaxable partnership income............................... (34.3) (33.6) (34.1)
Net operating loss carryforward............................. (0.7) (0.7) 0.0
Other....................................................... 0.0 0.0 (0.5)
---- ---- ----
Effective tax rate.......................................... 0.1% 0.8% 0.5%
==== ==== ====
</TABLE>

F-10
<PAGE> 109

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9. EMPLOYEE PENSION AND RETIREMENT PLANS

PENSION PLAN. The Company's pension plan is a non-contributory defined
benefit plan covering substantially all employees. The salaried employee
benefits are based on years of credited service and the highest five-year
average compensation levels, and the hourly employee benefits are based on years
of service. Contributions to the plan are based upon the projected unit credit
actuarial funding method and are limited to amounts that are currently
deductible for tax purposes. The Company's pension expense was $2.1 million,
$1.9 million and $1.2 million for 1993, 1994 and 1995, respectively.

The following table sets forth the funded status of the Company's pension
plan at December 31 (in thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................................... $27,256 $36,431
Non-vested..................................................... 608 926
------- -------
Accumulated benefit obligation................................. $27,864 $37,357
======= =======
Projected benefit obligation..................................... $34,113 $46,979
Plan assets, primarily marketable equity and debt securities, at
fair market value.............................................. 32,800 40,576
------- -------
Projected benefit obligation in excess of plan assets............ (1,313) (6,403)
Unrecognized net loss............................................ 4,807 12,554
Prior service cost not yet recognized............................ 346 (78)
------- -------
Prepaid pension cost............................................. $ 3,840 $ 6,073
======= =======
</TABLE>

The components of the Company's pension cost were as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $1,374 $1,441 $1,277
Interest cost on projected benefit obligation............ 2,573 2,709 2,886
Actual return on plan assets............................. (3,578) 432 (6,210)
Net amortization and deferral............................ 1,763 (2,715) 3,273
------ ------ ------
Net pension cost......................................... $2,132 $1,867 $1,226
====== ====== ======
</TABLE>

The following assumptions were used in the accounting for the Company's
pension plan as of December 31:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate................................. 7.5% 8.5% 7.0%
Rate of increase in compensation levels........................ 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets............... 8.0% 8.0% 8.5%
</TABLE>

The Company adopted two nonqualified defined benefit pension plans for
executives and key management employees effective January 1, 1993 and January 1,
1994, respectively. The projected benefit obligation for these plans was $2.7
million and $4.4 million as of December 31, 1994 and 1995, respectively. The
Company's pension expense for these plans was $0.4 million, $0.8 million and
$0.6 million for 1993, 1994 and 1995, respectively.

F-11
<PAGE> 110

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

THRIFT AND PROFIT SHARING PLAN. The Company sponsors an employee thrift
and profit sharing plan under section 401 of the Internal Revenue Code. This
plan covers substantially all full-time employees. The Company matches employee
contributions of up to six percent of compensation at rates ranging from 35 to
75 percent, depending upon the Company's financial performance. Amounts charged
to expense were $2.3 million, $2.0 million and $2.7 million during 1993, 1994
and 1995, respectively.

OTHER BENEFIT PLANS. Certain executives and key employees of the General
Partner participate in incentive benefit plans established by the General
Partner which provide for the granting of Units and/or cash bonuses upon meeting
performance objectives. See Note 10 to Notes to Combined Financial Statements.

NOTE 10. RELATED-PARTY TRANSACTIONS

The General Partner is responsible for all decisions related to the
management of the Company. The General Partner has a two percent general partner
interest in the income and cash distributions of the Partnership, subject to
certain adjustments, and owns two percent and four percent interests in
Manufacturing and Marketing, respectively. The Company reimburses the General
Partner for the actual cost of administering its businesses. Amounts reimbursed
to the General Partner for such costs were $5.0 million and $5.6 million for the
years ended December 31, 1994 and 1995, respectively. During 1993, the Company
directly paid the costs associated with administering the businesses.

Effective October 1, 1993, the General Partner established a Long-Term
Incentive Plan ("LTIP") which provides for granting Unit Appreciation Rights
("UARs") to certain executives of the General Partner. When any of five Unit
Value Targets ("UVTs") established by the LTIP are met through a combination of
Unit market appreciation plus Partnership cash distributions, a percentage of
the UARs is triggered and Units are credited to the executives' accounts. The
performance period under the LTIP during which UVTs may be met ends December 31,
1998, at which time any earned Units will be distributed. Costs incurred by the
General Partner in administering and funding the LTIP are borne by the
Partnership.

The General Partner has granted 1,330,000 UARs, net of forfeitures, which
could result in a total of 668,802 Units being earned under the LTIP if all UVTs
are met. Units in the executives' accounts will earn additional Units equal to
the amount of any subsequent Partnership cash distributions. As of December 31,
1995, two UVTs have been achieved and 167,200 Units have been allocated to the
executives' accounts. Total compensation expense with respect to the achievement
of these two UVTs will be approximately $4.5 million, of which $0.8 million and
$1.0 million was recognized in 1994 and 1995, respectively. The remaining
compensation expense will be recognized over the remaining performance period
ending December 31, 1998.

Effective January 1, 1994, the General Partner established a Key Employee
Long-Term Incentive Plan ("KLTIP") for certain of its other key employees. The
KLTIP provisions are similar to the LTIP described above. The General Partner
has granted 380,000 UARs, net of forfeitures, which could result in a total of
191,086 Units being earned under the KLTIP if all UVTs are met. Units in the
participants' accounts will earn additional Units equal to the amount of any
subsequent Partnership cash distributions. As of December 31, 1995, two UVTs
have been achieved and 47,772 Units have been allocated to the key employees'
accounts. Total compensation expense with respect to the achievement of these
two UVTs will be approximately $1.2 million, of which $0.5 million was
recognized in 1995. The remaining compensation expense will be recognized over
the remaining performance period ending December 31, 1998. Costs incurred by the
General Partner in administering and funding the plan are borne by the
Partnership.

The Partnership is required under the Partnership agreement to reimburse
the General Partner for compensation costs related to the management of the
Partnership, including the purchase of Units associated with these benefit
plans. During 1994, the Partnership paid the General Partner for its purchase of
496,800 Units at a total cost of $12.8 million, of which $10.5 million was
funded from current operations and $2.3 million from funds held by an employee
benefit trust of the Partnership.

F-12
<PAGE> 111

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Effective January 1, 1994, the General Partner established a Management
Incentive Plan ("MIP") for certain executives of the General Partner. An annual
bonus of up to 100% of the respective executive's base salary may be awarded if
certain performance objectives established by the General Partner are met by the
Company and by the executive. One-half of the bonus will be paid annually in
cash and the remaining half will be converted into Units at fair market value
and will be distributed at the end of three years. Units in executives' accounts
will earn additional Units equal to the amount of any subsequent Partnership
cash distributions. Costs incurred in administering and funding the plan are
borne by the General Partner.

Net income is allocated to the General Partner based on two percent of the
Company's combined net income (adjusted for the incentive distribution), plus
the incentive distribution, as provided by the Partnership Agreement. The
incentive distributions paid in 1993, 1994 and 1995 were approximately $7.2
million, $14.4 million and $20.7 million, respectively.

Certain conflicts of interest could arise as a result of the relationships
described above. The Board of Directors and management of the General Partner
have a duty to manage the Company in the best interests of the Unitholders and,
consequently, must exercise good faith and integrity in handling the assets and
affairs of the Company. Related non-interest bearing receivables and payables
between the General Partner and the Company are settled in the ordinary course
of business. As of December 31, 1994, the Company had a receivable from the
General Partner of $176,000. As of December 31, 1995, the Company had a payable
to the General Partner of $42,000.

NOTE 11. COMMITMENTS AND CONTINGENCIES

A portion of the Company's log requirements is acquired through contracts
with public and private sources. Except for required deposits, no amounts are
recorded until such time as the Company harvests the timber. At December 31,
1994 and 1995, the unrecorded amounts of those contract commitments were
approximately $30.4 million and $21.5 million, respectively. During 1993, the
Partnership entered into a log sourcing contract to sell approximately 950
million board feet ("MMBF") of logs to a customer over a ten-year period ending
in 2003, at prevailing market rates. At December 31, 1995, the Partnership had a
remaining commitment of approximately 703 MMBF.

There are no contingent liabilities which would have a materially adverse
effect on the financial position, the results of operations or liquidity of the
Company.

The Company is subject to regulations regarding harvest practices and is
involved in various legal proceedings, including environmental matters,
incidental to its business. While administration of current regulations and any
new regulations or proceedings have elements of uncertainty, the General Partner
believes that none of the pending legal proceedings or regulatory matters will
have a materially adverse effect on the financial position, the results of
operations or liquidity of the Company.

The Company leases buildings and equipment under non-cancelable operating
lease agreements. The Company's operating lease expense was $1.9 million, $1.8
million and $2.2 million for 1993, 1994 and 1995, respectively. The following
summarizes the future minimum lease payments (in thousands):

<TABLE>
<S> <C>
1996................................................................ $1,997
1997................................................................ 1,730
1998................................................................ 1,442
1999................................................................ 773
2000................................................................ 680
Thereafter.......................................................... 1,887
------
Total............................................................... $8,509
======
</TABLE>

F-13
<PAGE> 112

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12. SEGMENT INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Resources...................................... $266,084 $ 324,426 $ 327,043
Manufacturing.................................. 324,625 372,248 375,677
Eliminations................................... (89,703) (118,017) (117,646)
-------- --------- ---------
$501,006 $ 578,657 $ 585,074
======== ========= =========
Operating Income
Resources...................................... $135,238 $ 150,730 $ 139,192
Manufacturing.................................. 11,471 32,175 35,567
Other and Eliminations......................... (20,152) (18,771) (15,783)
-------- --------- ---------
$126,557 $ 164,134 $ 158,976
======== ========= =========
Depreciation, Depletion and Amortization
Resources...................................... $ 22,570 $ 36,782 $ 35,394
Manufacturing.................................. 16,236 17,361 18,703
-------- --------- ---------
$ 38,806 $ 54,143 $ 54,097
======== ========= =========
Identifiable Assets
Resources...................................... $615,791 $ 617,934 $ 604,510
Manufacturing.................................. 238,851 247,415 244,877
Eliminations................................... (35,888) (39,129) (23,301)
-------- --------- ---------
$818,754 $ 826,220 $ 826,086
======== ========= =========
Capital Expenditures
Resources...................................... $260,534 $ 7,139 $ 8,481
Manufacturing.................................. 24,078 18,698 22,202
-------- --------- ---------
$284,612 $ 25,837 $ 30,683
======== ========= =========
</TABLE>

Revenues include both sales to unaffiliated customers and intersegment
sales. Intersegment sales prices are determined quarterly, based upon estimated
market prices and terms in effect at that time and are eliminated in
combination. Intersegment sales from the Resources Segment to the Manufacturing
Segment were $89.7 million, $118.0 million and $117.6 million for 1993, 1994 and
1995, respectively.

Operating income from the Resources Segment includes land sales of $7.7
million, $1.9 million and $1.6 million, for 1993, 1994 and 1995, respectively.
Combined export revenues, primarily to Pacific Rim countries, as a percentage of
total revenues were 17%, 15% and 13%, for 1993, 1994 and 1995, respectively.

During 1994 and 1995, net sales to one Resources Segment customer were
approximately 11% and 10% of combined revenues, respectively.

NOTE 13. SUBSEQUENT EVENT

On January 23, 1996, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.49 per Unit for the
fourth quarter of 1995. Total distributions will approximate $25.9 million
(including $6.0 million to the General Partner) and will be paid on March 1,
1996 to Unitholders of record on February 15, 1996.

F-14
<PAGE> 113

PLUM CREEK TIMBER COMPANY, L. P.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 14. EVENTS SUBSEQUENT TO JUNE 30, 1996 (UNAUDITED)

On July 16, 1996, the Board of Directors of the General Partner authorized
the Partnership to make a distribution of $0.51 per Unit for the second quarter
of 1996. Total distributions equaled approximately $27.2 million (including $6.5
million to the General Partner) and were paid on August 23, 1996 to Unitholders
of record on August 16, 1996.

On August 6, 1996, the Partnership entered into a definitive agreement with
Riverwood International Corporation ("Riverwood International") to purchase
Riverwood International's forestlands and solid wood conversion facilities. The
Partnership will acquire approximately 529,000 acres of fee timberlands and
approximately 9,000 acres of leased timberlands located primarily in northern
Louisiana and southern Arkansas, a sawmill and a plywood plant located in Joyce,
Louisiana, a sawmill in Huttig, Arkansas, and a nursery in Texas for a purchase
price of approximately $540 million, plus working capital as of the closing
date. As part of the acquisition, the Partnership will enter into a long-term
agreement to supply fiber to Riverwood International's paper facility in West
Monroe, Louisiana. The proposed acquisition is subject to a number of
contingencies including the approval of Riverwood International's lenders.
Should all contingencies be satisfied, the transaction is expected to close
during the fourth quarter of 1996.

F-15
<PAGE> 114

REPORT OF INDEPENDENT ACCOUNTANTS

To the Boards of Directors of
Riverwood Holding, Inc. and
Riverwood International Corporation

We have audited the accompanying statements of assets and liabilities of
the Riverwood U.S. Timberlands/Wood Products Division of Riverwood International
Corporation and its subsidiaries ("Division") as of December 31, 1995 and 1994,
and the related statements of revenues and expenses, and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Riverwood U.S.
Timberlands/Wood Products Division as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
August 30, 1996

F-16
<PAGE> 115

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Receivables............................................................ $ 4,882 $ 4,375
Inventories............................................................ 7,269 6,003
Prepaid expenses....................................................... 5,492 4,038
-------- --------
Total current assets........................................... 17,643 14,416
-------- --------
Property, plant and equipment, at cost:
Land and improvements.................................................. 7,602 7,602
Buildings.............................................................. 7,304 7,304
Machinery and equipment................................................ 59,252 60,004
-------- --------
74,158 74,910
Less, accumulated depreciation........................................... 48,863 52,124
-------- --------
25,295 22,786
Timber and timberlands, less cost of timber harvested.................... 240,436 238,887
-------- --------
Property, plant and equipment, net....................................... 265,731 261,673
-------- --------
Total assets................................................... $283,374 $276,089
======== ========
LIABILITIES
Current liabilities:
Accounts payable....................................................... $ 285 $ 726
Compensation and employee benefits..................................... 2,388 1,838
Other accrued liabilities.............................................. 850 1,199
-------- --------
Total current liabilities...................................... 3,523 3,763
Noncurrent liabilities................................................... 189 238
-------- --------
Total liabilities.............................................. 3,712 4,001
Contingencies and commitments (Note 4)
Owner's net investment................................................... 279,662 272,088
-------- --------
Total liabilities and owner's net investment................... $283,374 $276,089
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-17
<PAGE> 116

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

STATEMENTS OF REVENUES AND EXPENSES
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $146,879 $164,944 $159,749
Cost of sales.............................................. 99,053 105,458 109,195
Selling, general and administrative........................ 3,651 2,824 3,250
Research, development and engineering...................... 159 89 90
Other income, net.......................................... 19,845 11,072 2,369
------- ------- -------
Excess of revenues over costs and expenses................. $ 63,861 $ 67,645 $ 49,583
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-18
<PAGE> 117

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess of revenues over costs and expenses.................... $ 63,861 $ 67,645 $ 49,583
Noncash items included in excess of revenues over costs and
expenses:
Depreciation, amortization and cost of timber harvested..... 21,628 26,445 19,140
Net gain on sale of assets.................................. (17,189) (8,900) (365)
(Increase) decrease in current assets:
Receivables................................................. (1,342) (267) 506
Inventories................................................. (90) (1,027) 1,267
Prepaid expenses............................................ (8,552) (11,431) (10,574)
Increase (decrease) in current liabilities:
Accounts payable............................................ (153) (242) 442
Compensation and employee benefits.......................... (290) 273 (550)
Other accrued liabilities................................... -- 140 349
Increase (decrease) in noncurrent liabilities................. 79 (2) 49
--------- -------- --------
Net cash provided by operating activities........... 57,952 72,634 59,847
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................. (2,992) (1,510) (3,643)
Proceeds from sales of assets, net.......................... 45,276 9,710 954
--------- -------- --------
Net cash (used in) provided by investing
activities........................................ 42,284 8,200 (2,689)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash transferred to Riverwood International Corporation, net
of allocated charges paid................................ (100,236) (80,834) (57,158)
--------- -------- --------
Net cash (used in) provided by financing
activities........................................ (100,236) (80,834) (57,158)
--------- -------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS:
Cash and equivalents at beginning of year................... -- -- --
--------- -------- --------
Cash and equivalents at end of year......................... $ -- $ -- $ --
========= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-19
<PAGE> 118

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The Riverwood U.S. Timberlands/Woods Product Division ("Division") owns and
operates two sawmills and a plywood plant and approximately 538,000 acres of
timberlands (including approximately 9,000 acres of leased timberlands) in
Arkansas and Louisiana and a nursery in Texas.

Until March 27, 1996, the Division was a wholly-owned operating division of
a corporation formerly named Riverwood International USA, Inc. ("Riverwood"), a
wholly-owned subsidiary of a corporation formerly known as Riverwood
International Corporation ("RIC"). Until March 27, 1996, approximately 81.3% of
the outstanding common shares of RIC were owned by a corporation formerly named
Manville Corporation ("Manville"). See Note 10 for a description of the
transactions that occurred on March 27, 1996.

The Division's three mills manufacture dimensional lumber, landscape
timbers, plywood, structural panels and other wood products (collectively
referred to herein as "wood products"). These wood products are sold by the
Division directly to retailers, brokers and wholesalers, which are primarily
located in the southern and central U.S. markets. The Division operates within a
single industry segment.

Additionally, the Division has provided RIC's West Monroe, Louisiana,
paperboard mill with a significant portion of the mill's wood fiber
requirements. The wood fiber requirements are supplied via pulpwood from the
Division's timberlands and wood chips from the Division's three mills.

Historically, separate financial statements were not prepared for the
Division. These financial statements have been carved out from the historical
books and records of RIC. The owner's net investment balances in the statements
of assets and liabilities represent the original investment of RIC in the
Division and includes the results of all subsequent investment and income (loss)
transactions, as well as the difference between all costs and expenses paid by
RIC or allocated to the Division by RIC and all cash transferred to RIC by the
Division since its inception. Cash generated by the Division is transferred to
RIC on a daily basis for cash management purposes. The cumulative amount of cash
transferred since the Division's inception represents a reduction to the owner's
net investment account. The financial statements exclude any amounts related to
interest income or expense and debt. The statements of revenues and expenses
include allocations of charges for certain management services (see Note 9).

All of the allocations and estimates in the financial statements are based
on assumptions that management believes are reasonable under the circumstances.
These allocations and estimates are not necessarily indicative of the costs and
expenses that would have resulted if the Division had been operated as a
separate entity.

Accounts Receivable

The Division reviews a customer's credit history before extending credit.
Bad debt expense was insignificant in 1993, 1994 and 1995; accordingly, the
Division does not provide an allowance for doubtful accounts.

Prepaid Expenses

Prepaid expenses consist of prepaid timber cutting contracts, which are
amortized to inventory as the related timber is harvested.

F-20
<PAGE> 119

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Inventories

Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. In addition,
average cost bases are used to determine the cost of supplies and storeroom
inventories.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method based on the following estimated useful
lives of the related assets:

<TABLE>
<S> <C>
Buildings..................................................... 35 years
Land improvements............................................. 15 years
Machinery and equipment....................................... 8 to 15 years
Furniture and fixtures........................................ 5 to 10 years
Automobiles and light trucks.................................. 3 years
</TABLE>

The Division uses the composite method of accounting for property, plant
and equipment and, therefore, gains and losses from the normal retirement or
replacement of property, plant and equipment are reflected in accumulated
depreciation with no effect on current period earnings. The amount of related
accumulated deferred losses, net of accumulated depreciation, was $911,000 and
$936,000 as of December 31, 1994 and 1995, respectively. Gains and losses
arising from abnormal dispositions are included in operations currently.
Expenditures for replacements and betterments are capitalized, while maintenance
and repair costs that do not extend the useful life of the asset are charged
against operations as incurred.

Cost of Timber Harvested

Cost of timber harvested is based on unit cost rates calculated using the
total estimated yield of timber to be harvested and the unamortized timber
costs. Based on the initial harvestability of its planted pine timberlands and
improved measurements of existing volume and growth rates, the Division
adjusted, in 1995, its estimate of the unit costs of timber, which in turn
reduced cost of timber harvested by approximately $6.7 million.

Transactions with Affiliate

The Division receives certain management services provided by RIC. Charges
for such services are included in operating expenses in the statements of
revenues and expenses (Note 9).

Income Taxes

The Division is not a legal entity. The Division and RIC have been included
in Manville's consolidated federal income tax returns for all periods prior to
March 28, 1996. The Division was not party to any tax sharing agreement and,
accordingly, no provision or benefit for income taxes has been reflected in the
accompanying statements of revenues and expenses.

Pension Benefits

RIC has non-contributory defined benefits plans covering substantially all
U.S. employees, including the employees of the Division. The plans provide
retirement benefits based on years of service and compensation during the last
years of employment. The cost of these plans for active employees was allocated
to the Division (see Note 5) and is generally included in cost of goods sold.

F-21
<PAGE> 120

RIVERWOOD U.S. TIMBERLANDS/WOOD PRODUCTS DIVISION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pension cost allocated to the Division is deemed to have resulted in a cash
contribution between the Division and RIC in the period the pension cost was
incurred, and, in return, RIC is deemed to have assumed all responsibility for
pension payments to retirees. Accordingly, no pension related assets or
liabilities are included in the statement of assets and liabilities.